What changed in this filing

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Item 1. Financial Statements

2023-05-11 compared with 2022-11-09 · 414 added, 449 removed, 693 unchanged (55% of the section changed)

4 unchanged sentences

(in thousands, except share and per share amounts)

September 30,

2023 December 31,

16 unchanged sentences

Accrued expenses and other liabilities 54,118 41,825

Related-party promissory note, net of deferred issuance costs — 299,236

Related-party promissory notes, net of discounts and deferred issuance costs ( Note 9 )

441,628 431,901

Related-party convertible note at fair value ( Note 5 and Note 9 )

Due to related parties 2,932 3,469

1 unchanged sentence

Total current liabilities 564,945 500,861

Related-party promissory notes, net of discount, less current portion ( Note 9 )

Related-party convertible notes and accrued interest, net of discount ( Note 9 )

245,640 241,271

Related-party convertible notes and accrued interest, net of discount, less current portion ( Note 9 )

Operating lease liabilities, less current portion (including amounts with related parties) 46,289 47,951

Warrant liabilities 17,780 21,636

Other liabilities 462 457

3 unchanged sentences

Common stock, $ 0.0001 par value;

900,000,000 and 500,000,000 shares authorized

as of September 30, 2022 and December 31, 2021, respectively;

900,000,000 shares authorized

as of March 31, 2023 and December 31, 2022, respectively;

435,923,104 and

397,830,044 shares issued and outstanding as of September 30, 2022 and

421,569,115 shares issued and outstanding as of March 31, 2023 and

December 31, 2022, respectively;

excluding treasury stock, 163,800 shares

outstanding as of September 30, 2022 and December 31, 2021, respectively

outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 1,965,838 1,930,936

11 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Revenue $ 360 $ 14

8 unchanged sentences

Loss from operations ( 111,580 ) ( 95,972 )

Other expense, net:

Interest and investment income (loss), net 857 ( 5,941 ) 723 2,826

Other income (expense), net:

Interest and investment income, net 673 1,666

Interest expense (including amounts with related parties) ( 29,816 ) ( 8,491 )

Loss on equity method investment ( 2,337 ) ( 197 )

Other income (expense), net (including amounts

Change in fair value of warrant liabilities 27,554 —

Other expense, net (including amounts

with related parties) ( 1,077 ) ( 4 )

15 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net loss $ ( 116,583 ) $ ( 102,998 )

Other comprehensive (loss) income, net of income taxes:

Net unrealized (losses) gains on available-for-sale securities ( 22 ) ( 1 ) ( 183 ) 16

Other comprehensive income (loss), net of income taxes:

Net unrealized gains (losses) on available-for-sale securities 4 ( 310 )

Reclassification of net realized gains on

1 unchanged sentence

Foreign currency translation adjustments ( 226 ) ( 61 )

Total other comprehensive (loss) income ( 80 ) 16 ( 194 ) ( 69 )

Total other comprehensive loss ( 216 ) ( 371 )

Comprehensive loss ( 116,799 ) ( 103,369 )

8 unchanged sentences

(in thousands, except share amounts)

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Common Stock Additional

9 unchanged sentences

421,569,115 $ 42 $ 1,930,936 $ ( 2,378,488 ) $ 183 $ ( 447,327 ) $ ( 2,493 ) $ ( 449,820 )

Stock-based compensation expense

— — 10,024 — — 10,024 — 10,024

Exercise of stock options 14,767 — 74 — — 74 — 74

Vesting of restricted stock units (RSUs)

177,783 — — — — — — —

Net share settlement for RSUs vesting

( 65,832 ) — ( 372 ) — — ( 372 ) — ( 372 )

Other comprehensive (loss) income, net of tax

— — — — ( 371 ) ( 371 ) — ( 371 )

Net loss — — — ( 102,826 ) — ( 102,826 ) ( 172 ) ( 102,998 )

Balance, March 31, 2022 397,956,762 40 1,729,430 ( 2,064,747 ) ( 367 ) ( 335,644 ) ( 1,912 ) ( 337,556 )

Stock-based compensation expense

— — 10,175 — — 10,175 — 10,175

Exercise of stock options — — — — — — — —

Vesting of RSUs

116,608 — — — — — — —

Net share settlement for RSUs vesting

( 3,604 ) — ( 15 ) — — ( 15 ) — ( 15 )

Other comprehensive (loss) income, net of tax

— — — — 257 257 — 257

Net loss — — — ( 94,588 ) — ( 94,588 ) ( 247 ) ( 94,835 )

Balance as of June 30, 2022

Issuance of shares in a registered direct offering,

net of discount and offering costs of $ 2,046

and value ascribed to associated warrants ( Note 11 )

14,072,615 1 24,255 — — 24,256 — 24,256

2 unchanged sentences

Exercise of stock options 81,037 — 126 — — 126 — 126

Vesting of RSUs

Vesting of restricted stock units (RSUs)

313,975 — — — — — — —

1 unchanged sentence

( 113,638 ) — ( 357 ) — — ( 357 ) — ( 357 )

Shares issued pursuant to litigation settlement 2,229,296 — 10,656 — — 10,656 — 10,656

Gain on extinguishment of debt with related parties under common control — — 82,858 — — 82,858 — 82,858

Other comprehensive (loss) income, net of tax

1 unchanged sentence

Net loss — — — ( 116,343 ) — ( 116,343 ) ( 240 ) ( 116,583 )

Balance as of September 30, 2022

Balance as of March 31, 2023

435,923,104 $ 43 $ 1,965,838 $ ( 2,494,831 ) $ ( 33 ) $ ( 528,983 ) $ ( 2,733 ) $ ( 531,716 )

4 unchanged sentences

(in thousands, except share amounts)

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Common Stock Additional

16 unchanged sentences

Balance as of March 31, 2022

Issuance of common stock under “at-the-market”

offering, net of commissions and offering costs of $ 3,077

397,956,762 $ 40 $ 1,729,430 $ ( 2,064,747 ) $ ( 367 ) $ ( 335,644 ) $ ( 1,912 ) $ ( 337,556 )

Stock-based compensation expense — — 17,863 — — 17,863 — 17,863

Exercise of stock options 759,639 — 3,311 — — 3,311 — 3,311

Vesting of RSUs 100,359 — — — — — — —

Net share settlement for RSUs vesting ( 20 ) — — — — — — —

Other comprehensive (loss) income, net — — — — 75 75 — 75

Net loss — — — ( 88,288 ) — ( 88,288 ) ( 1,097 ) ( 89,385 )

Balance as of June 30, 2021

390,347,740 39 1,625,018 ( 1,783,033 ) 37 ( 157,939 ) ( 646 ) ( 158,585 )

Issuance of common stock under “at-the-market”

offering, net of commissions and offering costs of $ 962

3,796,537 — 42,061 — — 42,061 — 42,061

Stock-based compensation expense — — 13,840 — — 13,840 — 13,840

Exercise of stock options 176,196 — 678 — — 678 — 678

Vesting of RSUs 285,280 — — — — — — —

Net share settlement for RSUs vesting ( 96,058 ) — ( 960 ) — — ( 960 ) — ( 960 )

Sale of assets to an entity under common control — — 1,435 — — 1,435 — 1,435

Other comprehensive (loss) income, net of tax — — — — 16 16 — 16

Net loss — — — ( 87,629 ) — ( 87,629 ) ( 800 ) ( 88,429 )

Balance as of September 30, 2021

394,509,695 $ 39 $ 1,682,072 $ ( 1,870,662 ) $ 53 $ ( 188,498 ) $ ( 1,446 ) $ ( 189,944 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

3 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities:

2 unchanged sentences

Stock-based compensation expense 10,878 10,024

Change in fair value of warrant liabilities ( 27,554 ) —

Transaction costs allocated to warrant liabilities 984 —

Non-cash interest items, net (including amounts with related parties) 2,505 3,028

Amortization of related-party notes discounts 11,536 370

Depreciation and amortization 4,681 4,090

Non-cash lease expense related to operating lease right-of-use assets 1,597 1,318

Amortization of net premiums and discounts on marketable debt securities 1,318 261

Impairment of intangible assets 681 —

Unrealized (gains) losses on equity securities ( 162 ) ( 2,383 )

Unrealized (gains) on equity securities ( 135 ) ( 1,419 )

Other 111 1,045

11 unchanged sentences

Purchase of intangible assets — ( 21,229 )

Proceeds from sales of property, plant and equipment — 20,498

Purchases of marketable debt securities, available-for-sale ( 158 ) ( 34,082 )

2 unchanged sentences

Investment in joint venture – an equity method investment — ( 1,000 )

Net cash provided by investing activities

Net cash used in investing activities

( 8,484 ) ( 69,313 )

Financing activities:

Proceeds from equity offering, net of issuance costs paid — 136,948

Proceeds from issuance of related-party promissory notes,

Proceeds from equity offerings,

net of discounts and issuance costs 47,288 —

Proceeds from issuance of related-party convertible promissory notes,

net of issuance costs paid 29,850 —

Proceeds from exercises of stock options 126 74

Sale of assets to an entity under common control — 1,435

Net share settlement for RSUs vesting ( 357 ) ( 372 )

Principal payments of finance leases ( 19 ) —

Payment for contingent consideration ( 339 ) ( 419 )

Net cash provided by financing activities

Net cash provided by (used in) financing activities

76,888 ( 298 )

8 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Reconciliation of cash, cash equivalents, and restricted cash, end of period:

7 unchanged sentences

Supplemental disclosure of non-cash activities:

Gain on extinguishment of debt with related parties under common control $ 82,858 $ —

Right-of-use assets obtained in exchange for operating lease liabilities 13,787 19,461

Initial measurement of warrants issued in connection with the

registered direct offering accounted for as liabilities

Property and equipment purchases included in accounts payable,

accrued expenses and due to related parties

Common stock issued pursuant to litigation settlement 10,656 —

Right-of-use assets obtained in exchange for finance lease liabilities 199 —

Unrealized (losses) gains on marketable debt securities, net ( 64 ) 16

Unpaid offering costs included in accounts payable and accrued expenses 318 —

Unrealized gains (losses) on marketable debt securities, net 10 ( 310 )

Right-of-use assets obtained in exchange for operating lease liabilities — 911

The accompanying notes are an integral part of these condensed consolidated financial statements.

3 unchanged sentences

Description of Business

In these notes to unaudited condensed consolidated financial statements, the terms “ImmunityBio,” “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio and subsidiaries.

In these notes to unaudited condensed consolidated financial statements, the terms “ImmunityBio,” “the company,” “we,” “us,” and “our” refer to ImmunityBio, Inc.

and its subsidiaries.

ImmunityBio, Inc.

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I n May 2022, we announced the submission of a Biologics License Application (BLA) to the FDA for our product candidate, Anktiva in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease.

In July 2022, we announced the FDA has accepted our BLA for review and set a target Prescription Drug User Fee Act (PDUFA) action date of May 23, 2023.

In July 2022, we announced the FDA had accepted our BLA for review and set a target Prescription Drug User Fee Act (PDUFA) action date of May 23, 2023.

On May 9, 2023, the FDA delivered a complete response letter to us regarding the BLA.

The company plans to request a meeting with the FDA as soon as possible to address the subject matter of the letter and a response timeline, and plans to diligently address and resolve the issues identified and seek approval as expeditiously as possible.

It is unclear when the FDA will approve our BLA, if at all.

Our platforms include 9 first-in-human therapeutic agents that are currently being studied in 27 clinical trials—17 of which are in Phase 2 or 3 development—across 13 indications in liquid and solid tumors, including bladder, pancreatic, and lung cancers.

These are among the most frequent and lethal cancer types for which there are high failure rates for existing standards of care or, in some cases, no available effective treatment.

In infectious disease, our pipeline currently targets such pathogens as the novel strain of the coronavirus (SARS-CoV-2) and human immunodeficiency virus (HIV).

Our platforms include 13 novel therapeutic agents either in clinical trials or for which we are developing protocols.

We are currently engaged in 15 active clinical trials involving 10 of these agents.

Seven of these trials are being sponsored by ImmunityBio while the remaining eight are investigator-led studies.

Twelve of these trials are in Phase 2 or 3 development across eleven indications in liquid and solid tumors.

These include bladder, pancreatic, and lung cancers, which are among the most frequent and lethal cancer types, and where there are high failure rates for existing standards of care or no available effective treatment.

In infectious diseases, our pipeline currently targets such pathogens as the novel strain of the coronavirus (SARS-CoV-2) and human immunodeficiency virus (HIV).

We have established Good Manufacturing Practice (GMP) manufacturing capacity at scale with cutting-edge cell manufacturing expertise and ready-to-scale facilities, as well as extensive and seasoned research and development (R&D), clinical trial, and regulatory operations, and development teams.

On December 21, 2020 , NantKwest, Inc.

(NantKwest) and NantCell, Inc.

(formerly known as ImmunityBio, Inc., a private company) ( NantCell) entered into an Agreement and Plan of Merger (the Merger Agreement ), pursuant to which NantKwest and NantCell agreed to combine their businesses.

The Merger Agreement provided that a wholly-owned subsidiary of the company would merge with and into NantCell (the Merger ), with NantCell surviving the Merger as a wholly-owned subsidiary of the company.

On March 9, 2021 , we completed the Merger pursuant to the terms of the Merger Agreement.

Under the terms of the Merger Agreement, at the effective time of the Merger (the Effective Time), each share of NantCell common stock , par value $ 0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted automatically into a right to receive 0.8190 (the Exchange Ratio) newly issued shares of common stock, par value $ 0.0001 per share, of the company (Company Common Stock), with cash paid in lieu of any fractional shares.

At the Effective Time, each share of the company’s common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company.

At the Effective Time, each outstanding option, RSU or warrant to purchase NantCell common stock was converted using the Exchange Ratio into an option, RSU or warrant, respectively, on the same terms and conditions immediately prior to the Effective Time, to purchase shares of Company Common Stock.

Immediately following the Effective Time, the former stockholders of NantCell held approximately 71.5 % of the outstanding shares of Company Common Stock and the stockholders of NantKwest as of immediately prior to the Merger held approximately 28.5 % of the outstanding shares of Company Common Stock.

As a result of the Merger and immediately following the Effective Time, Dr.

Patrick Soon-Shiong, our Executive Chairman and Global Chief Scientific and Medical Officer, and his affiliates beneficially owned, in the aggregate, approximately 81.8 % of the outstanding shares of Company Common Stock.

Following the consummation of the Merger, the symbol for shares of the company’s common stock was changed to “IBRX.”

Summary of Significant Accounting Policies

8 unchanged sentences

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the company, our wholly owned subsidiaries, and a variable interest entity (VIE) for which we are the primary beneficiary.

The accompanying unaudited condensed consolidated financial statements include the accounts of the company, its wholly-owned subsidiaries, and a variable interest entity (VIE) for which the company is the primary beneficiary.

Any material intercompany transactions and balances have been eliminated upon consolidation.

2 unchanged sentences

This assessment is based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

As of September 30, 2022, the company had an accumulated deficit of $ 2.3 billion.

We also had negative cash flows from operations of $ 246.8 million for the nine months ended September 30, 2022.

As of March 31, 2023, the company had an accumulated deficit of $ 2.5 billion.

We also had negative cash flows from operations of $ 84.3 million for the three months ended March 31, 2023.

The company will likely need additional capital to further fund the development of, and to seek regulatory approvals for, our product candidates, and to begin to commercialize any approved products.

1 unchanged sentence

As a result of continuing anticipated operating cash outflows, we believe that substantial doubt exists regarding our ability to continue as a going concern without additional funding or financial support.

However, we believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings (including but not limited to the offering, issuance and sale by us of our common stock that may be issued and sold under an “at-the-market” sales agreement with Jefferies LLC (the ATM), of which we had $ 330.8 million available for future issuance as of September 30, 2022), and our potential ability to borrow from affiliated entities, will be sufficient to fund our operations through at least the next 12 months following the issuance date of the condensed consolidated financial statements based primarily upon our Executive Chairman and Global Chief Scientific and Medical Officer’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt.

However, we believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings (including but not limited to the offering, issuance and sale by us of our common stock that may be issued and sold under an “at-the-market” sales agreement (the Sale Agreement) with our sales agent (the ATM), of which we had $ 225.4 million available for future issuance as of March 31, 2023, and a February 2023 shelf registration statement, of which we had $ 640.0 million available for future offerings as of March 31, 2023), and our potential ability to borrow from affiliated entities, will be sufficient to fund our operations through at least the next 12 months following the issuance date of the condensed consolidated financial statements based primarily upon our Executive Chairman and Global Chief Scientific and Medical Officer’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt.

See Note 12 , Stockholders’ Deficit, for information regarding the ATM and the shelf registration statement.

We may also seek to sell additional equity, through one or more follow-on offerings, or in separate financings, or obtain a credit facility.

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GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, asset acquisition, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these condensed consolidated financial statements.

On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value calculation of warrants and convertible promissory notes, fair value measurements, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these condensed consolidated financial statements.

We base our estimates on historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances.

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“Financial Statements and Supplementary Data” of our Annual Report on Form 10-K filed with the SEC on March 1, 2023.

We make certain judgments to determine whether transactions should be accounted for as acquisitions of assets or as business combinations.

If it is determined that substantially all of the fair value of gross assets acquired in a transaction is concentrated in a single asset (or a group of similar assets), the transaction is treated as an acquisition of assets.

We evaluate the inputs, processes, and outputs associated with the acquired set of activities and assets.

If the assets in a transaction include an input and a substantive process that together significantly contribute to the ability to create outputs, the transaction is treated as an acquisition of a business.

We account for business combinations using the acquisition method of accounting, which requires that assets acquired and liabilities assumed generally be recorded at their fair values as of the acquisition date.

Excess of consideration over the fair value of net assets acquired is recorded as goodwill.

Estimating fair value requires us to make significant judgments and assumptions.

We perform impairment testing of goodwill annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

In transactions accounted for as asset acquisitions, the cost of an asset acquisition, including transaction costs, are allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis.

Goodwill is not recognized in an asset acquisition.

Any difference between the cost of an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based on their relative fair values.

In an asset acquisition, upfront payments allocated to in-process research and development projects at the acquisition date are expensed unless there is an alternative future use.

In addition, product development milestones are expensed upon achievement.

Any contingent consideration, such as payments upon achievement of various developmental, regulatory and commercial milestones, generally is not recognized at the acquisition date.

The company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Accounting Standards Codification (ASC) Topic 480, Distinguishing Liabilities from Equity (ASC 480), and ASC Topic 815, Derivatives and Hedging (ASC 815).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the company’s own stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the company’s control, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For warrants that meet all criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.

For warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and on each balance sheet date thereafter.

Changes in the estimated fair value of the warrants are recognized as a non-cash change in fair value of warrant liabilities in o ther income (expense), net , on the condensed consolidated statements of operations.

The fair value of the warrants was estimated using the Black-Scholes option pricing model.

Fair Value Option (FVO) Election

The company accounts for certain convertible notes issued during the three months ended March 31, 2023 under the fair value option (FVO) election of ASC 825, Financial Instruments (ASC 825), as discussed below.

The convertible notes accounted for under the FVO election are each debt host financial instruments containing embedded features wherein the entire financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.

Changes in the estimated fair value of the convertible notes are recorded as other income (expense), net on the condensed consolidated statements of operations, except that the change in estimated fair value attributable to a change in the instrument-specific credit risks is recognized as a component of other comprehensive income.

Since the underlying financial instrument was issued on March 31, 2023 , we did not recognize any change in estimated fair values during the three months ended March 31, 2023 .

Basic and Diluted Net Loss per Share of Common Stock

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The following table details those securities that have been excluded from the computation of potentially dilutive securities:

As of September 30,

As of March 31,

Related-party convertible notes (1) 46,726,407 —

Outstanding third-party warrants 23,163,524 —

Outstanding stock options 9,159,665 8,819,466

2 unchanged sentences

Total 86,875,888 16,606,877

Amounts in the table above reflect the common stock equivalents of the noted instruments, including awards issued under the NantKwest 2015 Equity Incentive Plan (the 2015 Plan) and the NantKwest 2014 Equity Incentive Plan.

At the Effective Time, each outstanding option or RSU issued under the 2015 NantCell Stock Incentive Plan and warrants issued by NantCell to purchase or acquire NantCell common stock were converted using the Exchange Ratio into an option, RSU or warrant, respectively, on the same terms and conditions immediately prior to the Effective Time .

See Note 12 , Stock-Based Compensation , for further information.

_______________

(1) Amount excludes the shares related to the related-party convertible note with a principal amount of $ 30.0 million issued on March 31, 2023 as the conversion price has not yet been determined.

See Note 9 , Related-Party Debt , for further information.

Recent Accounting Pronouncements

Application of New or Revised Accounting Standards – Adopted

In May 2021, the FASB issued Accounting Standards Update (ASU) 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).

This update provides guidance to clarify and reduce diversity in an accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that is not within the scope of another Topic.

An entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument.

This update additionally provides further guidance on measuring the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration.

This guidance is effective for the fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

The company adopted this guidance on January 1, 2022 on a prospective basis.

In August 2020, the FASB issued ASU 2020-06, A ccounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies and clarifies certain calculation and presentation matters related to convertible equity and debt instruments.

Specifically, ASU 2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removes the requirement to account for beneficial conversion features on such instruments.

In addition, ASU 2020-06 eliminates the treasury stock method when calculating diluted earnings per share for convertible instruments that can be settled in whole or in part with equity and requires the use of the if-converted method.

The guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

The company adopted this guidance on January 1, 2022 on a modified prospective basis.

Application of New or Revised Accounting Standards – Not Yet Adopted

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , which amends the guidance in Topic 820, Fair Value Measurement , to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

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We are currently evaluating the impact of this standard on our condensed consolidated financial statements.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC during the nine months ended September 30, 2022 did not, or are not expected to, have a material effect on our condensed consolidated financial statements.

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842):

Common Control Arrangements , which requires that leasehold improvements associated with common control leases be amortized over the useful life of the leasehold improvements to the common control group, regardless of the lease term.

ASU 2023-01 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

We are currently evaluating the impact of this standard on our condensed consolidated financial statements and related disclosures.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC during the three months ended March 31, 2023 did not, or are not expected to, have a material effect on our condensed consolidated financial statements.

Financial Statement Details

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Prepaid expenses and other current assets consist of the following (in thousands):

September 30,

2023 December 31,

Prepaid research and development costs $ 6,741 $ 11,704

Prepaid services 3,246 8,013

Insurance claims receivable 5,000 —

Insurance premium financing asset 2,461 2,598

Prepaid supplies 2,160 2,160

1 unchanged sentence

Prepaid software license fees 1,672 2,195

Insurance premium financing asset 357 1,417

Other 4,428 3,732

2 unchanged sentences

Property, plant and equipment, net, consist of the following (in thousands):

September 30,

2023 December 31,

7 unchanged sentences

Property, plant and equipment, net $ 154,165 $ 143,659

Depreciation expense related to property, plant and equipment totaled $ 4.1 million and $ 3.7 million for the three months ended September 30, 2022 and 2021, respectively, and $ 11.7 million and $ 10.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Depreciation expense related to property, plant and equipment totaled $ 4.2 million and $ 3.8 million for the three months ended March 31, 2023 and 2022, respectively.

Intangible Assets, Net

The gross carrying amounts and accumulated amortization of intangible assets are as follows at the dates indicated (in thousands):

March 31, 2023

(in years) Gross Carrying

Amount Accumulated

Amortization Impairment Net Carrying

Finite-lived:

Favorable leasehold rights 8.9 $ 20,398 $ ( 2,295 ) $ — $ 18,103

Indefinite-lived:

In-process research

and development (IPR&D)

1,399 — — 1,399

Total intangible assets $ 21,797 $ ( 2,295 ) $ — $ 19,502

December 31, 2022

(in years) Gross Carrying

Amount Accumulated

Amortization Impairment Net Carrying

Finite-lived:

Favorable leasehold rights 9.1 $ 20,398 $ ( 1,785 ) $ — $ 18,613

Finite-lived:

Organized workforce 831 ( 150 ) ( 681 ) —

Total finite-lived intangible assets 21,229 ( 1,935 ) ( 681 ) 18,613

Indefinite-lived:

IPR&D 1,390 — — 1,390

Total intangible assets $ 22,619 $ ( 1,935 ) $ ( 681 ) $ 20,003

In connection with the acquisition of the Dunkirk facility in 2022, we acquired finite-lived intangibles consisting of favorable leasehold rights and an organized workforce.

We recorded amortization expense of our finite-lived intangibles totaling $ 0.5 million and $ 0.3 million in research and development expense , on the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022, respectively.

Future amortization expense associated with our finite-lived intangible assets is as follows (in thousands):

Years ending December 31:

2023 (excluding the three months ended March 31, 2023)

Thereafter 8,413

Total $ 18,103

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):

September 30,

2023 December 31,

Accrued research and development costs $ 15,916 $ 1,930

Accrued bonus 14,642 12,068

Accrued professional and service fees 9,229 6,685

Accrued construction costs 7,340 8,145

Accrued preclinical and clinical trial costs 5,523 4,985

Accrued compensation 5,327 6,040

Accrued litigation payable ( Note 7 )

Financing obligation 2,461 2,598

Accrued research and development costs 2,204 2,107

Accrued laboratory equipment, supplies and related services 338 2,144

Accrued construction costs 2,136 7,072

Financing obligation – current portion 357 1,417

Other 988 1,628

Accrued expenses and other liabilities $ 54,118 $ 41,825

Interest and Investment Income (Loss), Net

Interest and investment income (loss), net consists of the following (in thousands):

Interest and Investment Income, Net

Interest and investment income, net consists of the following (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Unaudited) (Unaudited)

Unrealized gains (losses) from equity securities $ 614 $ ( 6,008 ) $ 162 $ 2,383

Unrealized gains from equity securities $ 135 $ 1,419

Interest income 284 1,296

Investment amortization expense, net 260 ( 1,049 )

Net realized (losses) gains on investments — — ( 119 ) 173

Interest and investment income (loss), net $ 857 $ ( 5,941 ) $ 723 $ 2,826

Interest income includes interest from marketable securities, convertible notes receivable, other assets, and interest from bank deposits.

Net realized losses on investments ( 6 ) —

Interest and investment income, net $ 673 $ 1,666

Interest income includes interest from marketable securities, convertible notes receivable, other assets, and on bank deposits.

Interest expense

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Unaudited) (Unaudited)

Interest expense on related-party notes payable $ ( 12,240 ) $ ( 3,593 ) $ ( 29,660 ) $ ( 10,307 )

Interest expense on related-party notes $ ( 18,260 ) $ ( 8,101 )

Amortization of related-party notes discounts ( 11,536 ) ( 370 )

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Investments in Marketable Debt Securities

As of September 30, 2022, the weighted-average remaining contractual life, amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands):

September 30, 2022

As of March 31, 2023, the weighted-average remaining contractual life, amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands):

March 31, 2023

Contractual Life

(in years) Amortized

Foreign bonds 2.0 $ 107 $ — $ — $ 107

Mutual funds 39 — ( 2 ) 37

Current portion 146 — ( 2 ) 144

Foreign bonds 0.3 902 — ( 82 ) 820

Total $ 1,048 $ — $ ( 84 ) $ 964

As of December 31, 2021, the amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands):

As of December 31, 2022, the weighted-average remaining contractual life, amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands):

December 31, 2022

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(in years) Amortized

Corporate debt securities 0.5 $ 129,190 $ 10 $ ( 36 ) $ 129,164

Foreign bonds 0.4 116 — ( 1 ) 115

Mutual funds $ 38 $ — $ ( 2 ) $ 36

Current portion 129,341 13 ( 37 ) 129,317

Foreign bonds 4.5 932 — ( 92 ) 840

Noncurrent portion 719 103 — 822

Total $ 970 $ — $ ( 94 ) $ 876

At September 30, 2022, 13 of the securities were in an unrealized loss position.

At March 31, 2023, 14 of the securities were in an unrealized loss position.

Accumulated unrealized losses on marketable debt securities that have been in a continuous loss position for less than 12 months and more than 12 months were as follows (in thousands):

September 30, 2022

March 31, 2023

Less than 12 months More than 12 months

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Losses Estimated

Corporate debt securities $ 86,158 $ ( 36 ) $ — $ —

Mutual funds $ — $ — $ 36 $ ( 2 )

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Total $ — $ — $ 876 $ ( 94 )

Realized gains and losses on sales of available-for-sale marketable debt securities were not material for the three and nine months ended September 30, 2022 and 2021.

Marketable Equity Securities

We held investments in marketable equity securities with readily determinable fair values of $ 6.9 million and $ 6.7 million as of September 30, 2022 and December 31, 2021, respectively.

Unrealized gains and losses recorded on these securities totaled a gain of $ 0.6 million and a loss of $ 6.0 million for the three months ended September 30, 2022 and 2021, respectively, and unrealized gains totaled $ 0.2 million and $ 2.4 million for the nine months ended September 30, 2022 and 2021, respectively, in interest and investment income loss (income), net , on the condensed consolidated statements of operations.

We held investments in marketable equity securities with readily determinable fair values of $ 2.6 million and $ 2.5 million as of March 31, 2023 and December 31, 2022, respectively.

Unrealized gains recorded on these securities totaled $ 0.1 million and $ 1.4 million for the three months ended March 31, 2023 and 2022, respectively, in interest and investment income, net , on the condensed consolidated statements of operations.

Fair Value Measurements

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Financial assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements at September 30, 2022

Fair Value Measurements at March 31, 2023

Total Level 1 Level 2 Level 3

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Equity securities 2,643 2,643 — —

Foreign bonds 107 107 — —

Mutual funds 37 37 — —

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Total assets measured at fair value $ 92,088 $ 76,274 $ 15,814 $ —

Related-party convertible note payable $ ( 29,850 ) (2) $ — $ — $ ( 29,850 )

Contingent consideration obligations ( 20 ) — — ( 20 )

Warrant liabilities ( 17,780 ) (3) — — ( 17,780 )

Total liabilities measured at fair value $ ( 47,650 ) $ — $ — $ ( 47,650 )

Fair Value Measurements at December 31, 2022

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Equity securities 2,507 2,507 — —

Corporate debt securities 129,164 — 129,164 —

Foreign bonds 115 115 — —

Mutual funds 36 36 — —

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Total assets measured at fair value $ 108,024 $ 66,403 $ 41,621 $ —

Liabilities at fair value:

Contingent consideration $ ( 19 ) $ — $ — $ ( 19 )

Warrant liability ( 21,636 ) (3) — — ( 21,636 )

Total liabilities measured at fair value $ ( 21,655 ) $ — $ — $ ( 21,655 )

_______________

(1) Amounts shown as a Level 2 measurement as of December 31, 2021 include government-sponsored securities of $ 75.0 million, corporate debt securities of $ 54.2 million, and commercial paper of $ 0.5 million with original maturities of less than 90 days.

(1) As of March 31, 2023, the Level 2 measurements include $ 15.0 million in U.S.

government agency securities with original maturities of less than 90 days.

As of December 31, 2022, the Level 2 measurements include $ 32.0 million in U.S.

government agency securities and $ 8.8 million in corporate debt securities with original maturities of less than 90 days.

(2) As of March 31, 2023, the company has a related-party convertible note payable with a principal amount of $ 30.0 million, which is accounted for under the ASC 825-10-15-4 FVO election.

Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently re-measured at estimated fair value on a recurring basis at each reporting period date.

The company’s other related-party notes are not accounted for under the fair value election.

See Note 9 , Related-Party Debt, for further information.

The estimated fair value of the convertible note was computed using a discounted cash flow method with the following unobservable assumptions:

March 31, 2023

Expected market yield 17.5 %

Discount period 0.1 years

Discount factor 0.98

(3) Third-Party Warrant Liabilities

December 2022 Warrants

In connection with the December 12, 2022 registered direct offering of common stock, the company issued 9,090,909 warrants (December 2022 Warrants).

The warrants were classified as a liability at their fair value upon the issuance.

As of March 31, 2023, all warrants were outstanding.

The estimated fair value of the warrants was computed using the Black-Scholes option pricing model with the following unobservable assumptions at the following date:

March 31, 2023

Exercise price per share $ 6.60

Expected term 1.7 years

Expected average volatility 129.3 %

Expected dividend yield —

Risk-free interest rate 4.2 %

The change in the carrying amount of the December 2022 Warrants was as follows (in thousands):

Beginning fair value, at December 31, 2022

Change in fair value ( 15,818 )

Ending fair value, at March 31, 2023

February 2023 Warrants

In connection with the February 15, 2023 registered direct offering of common stock, the company issued 14,072,615 warrants (February 2023 Warrants).

The warrants were classified as a liability at its fair value upon the issuance.

As of March 31, 2023, all warrants were outstanding.

The estimated fair value of the warrants was computed using the Black-Scholes option pricing model with the following unobservable assumptions at the following dates:

March 31, 2023 Issuance Date

February 15, 2023

Exercise price per share $ 4.26 $ 4.26

Expected term 1.9 years 2.0 years

Expected average volatility 127.8 % 97.0 %

Expected dividend yield — —

Risk-free interest rate 4.1 % 4.6 %

Changes in the carrying amount of the February 2023 Warrants were as follows (in thousands):

Fair value at the issuance date $ 23,698

Change in fair value ( 11,736 )

Ending fair value, at March 31, 2023

Nonrecurring Valuations

We measured the fair value of the fixed-rate promissory notes and variable-rate promissory notes before and after amendments that were entered on August 31, 2022, as they were accounted for under the debt extinguishment accounting model.

We used the discounted cash flow analyses for promissory notes without a holder conversion option and used a binomial lattice convertible note model for the fixed-rate promissory notes with a holder conversion option.

We used discounted cash flow analyses for promissory notes without a holder conversion option and a binomial lattice convertible note model for the fixed-rate promissory notes with a holder conversion option.

Since certain of the factors analyzed are considered to be unobservable inputs, both the discounted cash flow model and the lattice model are considered to be a Level 3 valuation.

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The purpose of the joint venture is to accelerate commercialization of a next-generation COVID-19 vaccine utilizing an RNA vaccine-platform.

As part of the limited liability agreement, we agreed to contribute $ 1.0 million in cash and priority access to our manufacturing capacity for the joint venture product.

Amyris agreed to contribute $ 1.0 million in cash and rights to its license agreement with the Access to Advanced Health Institute (AAHI) (formerly known as the Infectious Disease Research Institute, or IDRI) for an RNA platform for the field of COVID-19.

As part of the limited liability agreement, Amyris contributed $ 1.0 million in cash and rights to its license agreement with the Access to Advanced Health Institute (AAHI) for an RNA platform for the field of COVID-19.

ImmunityBio contributed $ 1.0 million in cash and priority access to its manufacturing capacity for the joint venture product.

Both parties agreed to enter into a separate manufacturing and supply agreement and a sublicense agreement following the execution of the joint venture agreement.

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In February 2022, we made a cash investment totaling $ 1.0 million in the joint venture’s common stock.

We account for our investment in the joint venture using the equity method of accounting, and recorded our 50 % share of the net loss from the joint venture totaling $ 4.5 million and $ 8.6 million, respectively, in other expense, net , on the condensed consolidated statement of operations for the three and nine months ended September 30, 2022.

Such losses include $ 8.4 million of expenses incurred by us on behalf of the joint venture during the nine months ended September 30, 2022.

We are not obligated to fund the joint venture’s potential future losses, and therefore will not record additional equity method losses that would result in our equity investment in the joint venture to fall below zero.

As of September 30, 2022, the carrying amount of our equity investment in the joint venture was zero .

We account for our investment in the joint venture using the equity method of accounting, and recorded our 50 % share of the net loss from the joint venture totaling $ 2.3 million and $ 0.2 million, respectively, in other income (expense), net , on the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022.

Such losses incurred during the three months ended March 31, 2023 were attributed to expenses incurred by us on behalf of the joint venture.

We are not obligated to fund the joint venture’s potential future losses.

As of March 31, 2023, the carrying amount of our equity investment in the joint venture was zero .

License Agreements

3M Innovative Properties Company (3M IPC) and the Access to Advanced Health Institute (AAHI) License Agreement

3M Innovative Properties Company (3M IPC) and AAHI License Agreement

We have licensed rights to 3M-052, a synthetic TLR7/8 agonist, 3M-052 formulations and related technology from 3M IPC and its affiliates and AAHI.

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In June 2022, we made a payment of $ 1.75 million for the annual license maintenance fee.

We expensed $ 0.4 million for the three months ended September 30, 2022, and $ 0.6 million for the nine months ended September 30, 2022, respectively, in research and development expense , on the condensed consolidated statements of operations.

We expensed $ 0.4 million for the three months ended March 31, 2023, in research and development expense , on the condensed consolidated statement of operations.

AAHI License Agreements

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In addition, under the AAHI Adjuvant Formulation License Agreement we owe milestone payments to a total of up to $ 2.5 million based on the achievement of certain development and regulatory milestones for the first licensed product and royalties on annual net sales of licensed products on a country-by-country and product-by-product basis of a low-single digit percentage, subject to certain royalty-reduction provisions.

No milestone fees were incurred for the nine months ended September 30, 2022.

No milestone fees were incurred for the three months ended March 31, 2023.

In September 2021, we amended and restated the AAHI RNA License Agreement, pursuant to which AAHI granted us an exclusive, worldwide, sublicensable license to AAHI’s rights to an RNA vaccine platform for the development and commercialization of certain therapeutic, diagnostic or prophylactic products for the prevention, treatment or diagnosis of any indication, other than those subject to pre-existing third-party license grants, including, without limitation, SARS-CoV-2.

Pursuant to the terms of the amended and restated AAHI RNA License Agreement, we made an additional one-time, non-creditable, non-refundable, upfront payment to AAHI of $ 1.5 million.

The company is also required to pay license maintenance fees to AAHI as follows:

$ 3.0 million in 2022 and $ 5.5 million annually from 2023 through 2030.

Pursuant to the terms of the amended and restated AAHI RNA License Agreement, we made a one-time, non-creditable, non-refundable, upfront payment to AAHI of $ 1.5 million and a license maintenance fee of $ 3.0 million in June 2022.

The company is required to pay license maintenance fees to AAHI of $ 5.5 million annually from 2023 through 2030.

The company may terminate the restated agreement without cause by paying AAHI a $ 10.0 million one-time early termination fee.

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We are required to pay royalties on annual net sales of licensed products on a country-by-country and product-by-product basis of a low to mid-single digit percentage.

In June 2022, we made a payment of $ 3.0 million for the annual license maintenance fee.

We recorded $ 1.0 million and $ 1.5 million in research and development expense , on the condensed consolidated statements of operations during the nine months ended September 30, 2022 and 2021, respectively.

We recorded $ 0.8 million in research and development expense, on the condensed consolidated statement of operations during the three months ended March 31, 2023.

In connection with the license agreements, in May 2021 we also entered into a sponsored research agreement with the AAHI pursuant to which we will fund continued research of at least $ 2.0 million per year, payable in four equal quarterly installments each year until May 2024, or such year of earlier termination.

No expenses were incurred for the three months ended March 31, 2023.

Dunkirk Facility Leasehold Interest

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Leasehold improvements 6,253

Definite-lived intangible assets (1)

Finite-lived intangible assets (1)

Other depreciable assets and prepaid expenses 2,983

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_______________

(1) Definite-lived intangible assets consist of favorable leasehold rights totaling $ 20.4 million and organized workforce totaling $ 0.8 million as of the acquisition date.

We recorded amortization expense of $ 0.6 million and $ 1.4 million, respectively, in research and development expense , on the condensed consolidated statement of operations for the three and nine months ended September 30, 2022.

As of September 30, 2022, the remaining amortization period for our favorable leasehold rights is approximately 9.4 years.

Future amortization expense for the favorable leasehold rights is as follows:

$ 0.5 million for the remainder of 2022;

$ 2.0 million for each of the years from 2023 to 2026;

and $ 10.5 million thereafter.

(1) See Note 3 , Financial Statement Details—Intangible Assets, Net , for further information.

Upon the closing of the Dunkirk transaction, the company became the tenant of the Dunkirk Facility under the Fort Schuyler Management Corporation Lease, dated October 1, 2021 and as amended as of the February 14, 2022 closing date (as amended, the Dunkirk Lease), with Fort Schuyler Management Corporation, a not-for-profit corporation affiliated with the State of New York (FSMC) as landlord.

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As part of the transaction, we assumed certain of the Seller’s obligations under various third-party agreements (the Facility Agreements), subject to the terms and conditions of the purchase agreement by and between the company and Seller dated as of January 7, 2022, and committed to spend an aggregate of $ 1.52 billion on operational expenses during the initial term, and an additional $ 1.50 billion on operational expenses if we elect to renew the lease for the additional 10-year term.

We also committed to hiring 450 employees at the Dunkirk Facility within the first 5 years of operations, with 300 such employees to be hired within the first 2.5 years of operation.

We also committed to hiring 450 employees at the Dunkirk Facility within the first five years of operations, with 300 such employees to be hired within the first 2.5 years of operation.

We are eligible for certain sales-tax exemption savings during the development of the Dunkirk Facility, and certain property tax savings over the next 20 years, subject to certain terms and conditions, including performance of certain of the obligations described above.

Failure to satisfy the obligations over the lease term may give rise to certain rights and remedies of governmental authorities including, for example, termination of the Dunkirk Lease and other Facility Agreements and potential recoupment of a percentage of the grant funding received by the Seller for construction of the facility and other benefits received, subject to the terms and conditions of the applicable agreements.

In connection with the ongoing partnership with the State of New York (the State) to construct the Dunkirk Facility, we received funds from the State as reimbursement for certain expenses incurred related to such construction totaling $ 1.1 million for the three months ended September 30, 2022.

Although we believe that governmental funding will assist in funding a portion of the further build-out of the Dunkirk Facility, which we estimate to be approximately $ 8.0 million to $ 10.0 million of governmental funding remaining available as of September 30, 2022, there can be no assurance as to the final acceptance and timing of the requests for governmental funding that we submit, and we will need to plan and fund most of the additional build-out of, and purchase additional equipment for, the Dunkirk Facility in connection with our planned full operations.

Although we believe that governmental funding will assist in funding a portion of the further build-out of the Dunkirk Facility, which we estimate to be approximately $ 8.0 million to $ 10.0 million of governmental funding remaining available as of March 31, 2023, there can be no assurance as to the final acceptance and timing of the requests for governmental funding that we submit, and we will need to plan and fund most of the additional build-out of, and purchase additional equipment for, the Dunkirk Facility in connection with our planned full operations.

In addition, any future governmental funding will be subject to the eligibility of submitted expenses, as well as our compliance with the obligations that we are subject to pursuant to the agreements with parties regarding the Dunkirk Facility as described above.

Dunkirk Facility Workforce Reduction

In September 2022, the company initiated a workforce reduction at the Dunkirk Facility as a result of upcoming construction at the project, which we believe may take approximately 12 to 18 months.

In connection with the workforce reduction, we recorded severance and retention benefits for the terminated employees totaling $ 1.0 million and wrote off the remaining unamortized organized workforce intangible asset totaling $ 0.7 million during the three months ended September 30, 2022 in selling, general and administrative expense, on the condensed consolidated statement of operations.

The terminated employees are not required to render service through their termination date in December 2022 to receive these benefits.

Commitments and Contingencies

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A clinical milestone totaling $ 0.8 million was earned by the former owners of VivaBioCell, of which $ 0.4 million was paid during 2021, with the remaining clinical obligation settled in September 2022.

If the regulatory milestone is achieved, we are obligated to pay approximately $ 2.0 million to the former owners.

If a government agency unconditionally approves the GMP-in-a-Box technology for commercial sale (the regulatory milestone) in the future, we will be obligated to pay an additional approximately $ 2.2 million to the former owners.

Altor BioScience Corporation

In connection with the 2017 acquisition of Altor BioScience Corporation (Altor), we issued contingent value rights (CVRs) under which we agreed to pay the prior stockholders of Altor approximately $ 304.0 million contingent upon successful approval of the BLA, or foreign equivalent, for N-803 by December 31, 2022 and approximately $ 304.0 million contingent upon calendar-year worldwide net sales of N-803 exceeding $ 1.0 billion prior to December 31, 2026 (with amounts payable in cash or shares of our common stock or a combination thereof).

Soon-Shiong and his related party hold approximately $ 279.5 million in the aggregate of CVRs and they have both irrevocably agreed to receive shares of the company’s common stock in satisfaction of their CVRs.

We may be required to pay the other prior Altor stockholders up to $ 164.2 million in settlement of the CVRs relating to the regulatory milestone and up to $ 164.2 million of the CVRs relating to the sales milestone should they choose to have the CVRs paid in cash instead of common stock.

In connection with the 2017 acquisition of Altor BioScience Corporation (Altor), we issued contingent value rights (CVRs) under which we agreed to pay the prior stockholders of Altor approximately $ 304.0 million contingent consideration upon the successful regulatory approval of a BLA by the FDA, or foreign equivalent, for N-803 by December 31, 2022 and approximately $ 304.0 million contingent consideration upon calendar-year worldwide net sales of N-803 exceeding $ 1.0 billion prior to December 31, 2026, with amounts payable in cash or shares of our common stock or a combination thereof.

As the transaction was recorded as an asset acquisition, future CVR payments will be recorded when the corresponding events are probable of achievement or the consideration becomes payable.

We have submitted the BLA, and in July 2022, we announced the FDA had accepted our BLA for review and set a target PDUFA action date of May 23, 2023.

With respect to the regulatory milestone CVR agreement, in May 2022 we announced the submission of a BLA to the FDA for our product candidate, Anktiva (N-803) in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease .

I n July 2022 we announced that the FDA had accepted our BLA for review and set a target PDUFA action date of May 23, 2023.

On May 9, 2023, the FDA delivered a complete response letter to us regarding the BLA.

It is unclear when the FDA will approve our BLA, if at all.

If the FDA does not approve our BLA by December 31, 2022, prior to its established target PDUFA action date, the $ 304.0 million related to the regulatory milestone will not be payable and the holders of these CVRs will not receive any cash or shares of our common stock on account of the regulatory milestone CVRs.

The FDA did not approve our BLA on or before December 31, 2022, and therefore the regulatory milestone was not met, and the regulatory milestone CVR agreement terminated in accordance with its terms.

With respect to the net sales milestone CVR agreement, as of March 31, 2023, Dr.

Soon-Shiong and his related party hold approximately $ 139.8 million of net sales CVRs and they have both irrevocably agreed to receive shares of the company’s common stock in satisfaction of their CVRs.

We may be required to pay the other prior Altor stockholders up to $ 164.2 million for their net sales CVRs should they choose to have their CVRs paid in cash instead of common stock.

From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations.

We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business.

We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints.

If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve.

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Altor BioScience, LLC Litigation

In 2017, NantCell announced it had entered into a definitive merger agreement to acquire Altor BioScience Corporation.

In 2017, NantCell, Inc.

(NantCell) announced it had entered into a definitive merger agreement to acquire Altor BioScience Corporation.

An action captioned Gray v.

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Subsequent to the close of the merger, in 2017 the plaintiffs (joined by two additional minority stockholders, Barbara Sturm Waldman and Douglas E.

Henderson (Henderson)) filed a second amended complaint, asserting claims for (1) appraisal;

(2) quasi-appraisal;

(3) breach of fiduciary duty;

and (4) aiding and abetting breach of fiduciary duty.

The defendants moved to dismiss the second amended complaint, raising grounds that included a “standstill” agreement under which defendants maintained that Gray and Adam R.

Waldman and Barbara Strum Waldman (the Waldmans) agreed not to bring the lawsuit.

Henderson (Henderson)) filed a second amended complaint, including appraisal claims, and which the defendants subsequently moved to dismiss.

In a second action, Dyad Pharmaceutical Corporation (Dyad) filed a petition in Delaware Chancery Court for appraisal in connection with the merger.

Respondent moved to dismiss the appraisal petition in 2018, arguing in part that the petition was barred by the same “standstill” agreement.

In 2018, the court heard oral arguments on the motions to dismiss in both consolidated cases and converted the motions to dismiss into motions for summary judgment with regard to the “standstill” agreement argument (the Converted Motions).

The defendants moved to dismiss the appraisal petition in 2018.

The court issued an oral ruling in 2019 that dismissed certain claims and dismissed Altor BioScience from the action.

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(a) the appraisal claims by all plaintiffs and Dyad (against Altor BioScience, LLC), and (b) Henderson’s claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty.

In 2019, the court issued a written order implementing its ruling on the Converted Motions (the Implementing Order).

In 2019, the court issued a written order implementing its ruling on the defendants’ motions (the Implementing Order).

In the Implementing Order, the court confirmed that all fiduciary duty claims brought by Gray, both individually and as trustee of the Gordon Gray Trust f/b/o C.

Boyden Gray, were dismissed.

Gray and the Waldmans filed answers denying the counterclaims and asserting defenses.

The plaintiffs then moved for leave to file a third amended complaint to add two former Altor stockholders as plaintiffs and a fiduciary duty claim on behalf of a purported class of former Altor stockholders, which the defendants opposed.

In 2020, the court granted the plaintiffs’ motion, and the plaintiffs filed the third amended complaint.

In 2020, the defendants answered the third amended complaint and asserted counter claims against the plaintiffs.

The defendants are seeking damages for attorneys’ fees and costs incurred as a result of the breaches of the “standstill” agreements discussed above and of stockholder releases.

In 2020, the defendants answered the third amended complaint and asserted counterclaims against the plaintiffs.

The defendants sought damages for attorneys’ fees and costs incurred as a result of the breaches of “standstill” agreements and of stockholder releases.

The plaintiffs filed an answer denying the counterclaims and asserting defenses.

Trial was set to commence on August 8, 2022, but the parties received notice that the Vice Chancellor assigned to the case was retiring, and a new trial date has not been set.

The shares of the former Altor stockholders seeking appraisal met the definition of dissenting shares under the merger agreement and were not entitled to receive any portion of the merger consideration at the closing date, given that those shares were the subject of the above-described appraisal claims.

In late March 2022, the company agreed to the terms of a settlement with the appraisal petitioners, without any admission of liability or fault.

The settlement provides that in exchange for complete releases, the appraisal petitioners, who as a group held 3,167,565 dissenting Altor shares, collectively will receive an aggregate of 2,229,296 shares of the company’s common stock issued in a private placement, plus an aggregate of $ 21.13 in cash in lieu of fractional shares.

The settlement provided that in exchange for complete releases, the appraisal petitioners, who as a group held 3,167,565 dissenting Altor shares, collectively would receive an aggregate of 2,229,296 shares of the company’s common stock issued in a private placement, plus an aggregate of $ 21.13 in cash in lieu of fractional shares.

The company’s Board of Directors approved the settlement and stock issuance in April 2022, and the court approved the settlement and dismissed the appraisal petitioners’ claims on July 9, 2022.

On July 9, 2022, the company issued 2,229,296 shares of its common stock with an aggregate market value of $ 10.7 million, based on the closing price of its common stock as of July 8, 2022.

As of December 31, 2021, we had accrued $ 7.1 million related to the dissenting share obligation.

On July 9, 2022, the company issued 2,229,296 shares of its common stock with an aggregate market value of $ 10.7 million, based on the closing price of its common stock on the Nasdaq as of July 8, 2022, to the appraisal petitioners pursuant to the court-approved settlement agreement.

In late April 2022, the company also agreed to the terms of a settlement with the putative class plaintiffs without any admission of liability or fault.

In exchange for class-wide releases, and assuming the settlement receives court approval, the company will make a settlement payment of $ 5.0 million in cash by December 31, 2022.

The parties have submitted the settlement for court approval, and the court has set a hearing to review the settlement on December 5, 2022.

Prior to court approval, there can be no assurance as to whether or when the settlement will be approved.

As of September 30, 2022, we have included $ 5.0 million of accrued litigation expense related to this settlement on the condensed consolidated balance sheet.

Should the settlement with the class plaintiffs not be approved by the court, we cannot reasonably estimate a range of loss or likelihood of loss beyond the amounts recorded.

The company intends to defend the case vigorously should that prove necessary.

In exchange for class-wide releases, the company committed to make a settlement payment of $ 5.0 million in cash by December 31, 2022.

On December 8, 2022, the Delaware Court of Chancery entered a final judgment approving the settlement, and the company timely made the $ 5.0 million settlement payment.

Sorrento Therapeutics, Inc.

(Sorrento), derivatively on behalf of NANTibody, LLC (NANTibody) filed an action in the Superior Court of California, Los Angeles County (the Superior Court) against the company, Dr.

(Sorrento), derivatively on behalf of Immunotherapy NANTibody, LLC (NANTibody) filed an action in the Superior Court of California, Los Angeles County (the Superior Court) against the company’s subsidiary NantCell, Dr.

Soon-Shiong, and Charles Kim.

The action alleged that the defendants improperly caused NANTibody to acquire IgDraSol, Inc.

from our affiliate NantPharma, LLC (NantPharma) and sought to have the transaction undone and the purchase amount returned to NANTibody.

(IgDraSol) from NantPharma, LLC (NantPharma) and sought to have the transaction undone and the purchase amount returned to NANTibody.

In 2019, we filed a demurrer to several causes of action alleged in the Superior Court action, and Sorrento filed an amended complaint, eliminating Mr.

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Trial has been set to commence in Sorrento’s Superior Court action on July 17, 2023.

Sorrento filed a related arbitration proceeding (the Cynviloq arbitration) against Dr.

Soon-Shiong and NantPharma;

the company is not named in the Cynviloq arbitration.

In 2020, the Superior Court granted Dr.

Soon-Shiong’s request for a preliminary injunction barring Sorrento from pursuing claims against him in the Cynviloq arbitration.

Sorrento then filed the claims it had previously asserted in arbitration against Dr.

Soon-Shiong in the Superior Court, and at Sorrento’s request, the arbitrator entered an order dismissing Sorrento’s claims against Dr.

Soon-Shiong in the Cynviloq arbitration.

The hearing in the Cynviloq arbitration commenced in June 2021, and continued with breaks until early October 2021.

The parties completed post-hearing briefing in early May 2022, and summations were heard on September 8, 2022.

The matter is now under submission with the arbitrator.

Also in 2019, the company and Dr.

Soon-Shiong filed cross-claims in the Superior Court action against Sorrento and its Chief Executive Officer Henry Ji, asserting claims for fraud, breach of contract, breach of the covenant of good faith and fair dealing, tortious interference with contract, unjust enrichment, and declaratory relief.

Our claims allege that Dr.

Our claims alleged that Dr.

Ji and Sorrento breached the terms of an exclusive license agreement between the company and Sorrento related to Sorrento’s antibody library and that Sorrento did not perform its obligations under the exclusive license agreement.

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Ji asserting our claims relating to the exclusive license agreement.

In 2020, Sorrento sent letters purporting to terminate the exclusive license agreement with the company, and an exclusive license agreement with NANTibody and demanding the return of its confidential information and transfer of all regulatory filings and related materials.

As required pursuant to the exclusive license agreements, both parties must engage in good-faith negotiations before attempting to invoke any termination provision contained in the agreement.

Notwithstanding such negotiations, Sorrento sent a letter purporting to terminate the exclusive license agreements, maintaining the negotiations did not reach a successful resolution.

We believe we have cured any perceived breaches during the 90-day contractual cure period provided under the agreements.

Sorrento filed counterclaims against the company and NANTibody in the arbitration and requested leave to file a dispositive motion.

Sorrento filed counterclaims against the company and NANTibody in the arbitration.

The hearings in the NANTibody arbitration commenced in April 2021 and concluded in early August 2021.

After post-hearing briefing was concluded, the parties were notified on November 30, 2021 that the arbitrator in the NANTibody arbitration had passed away.

A substitute arbitrator was appointed on February 25, 2022, and the parties have been working with the substitute arbitrator to conclude the proceedings.

A substitute arbitrator was appointed on February 25, 2022, and the parties worked with the substitute arbitrator to conclude the proceedings.

Additional hearing sessions were held in May and July 2022, and summations took place on August 2, 2022.

After summations, the arbitrator sent certain questions to the parties, and the parties provided responses on October 12, 2022.

The matter is now under submission.

The Superior Court actions remain pending, and it remains to be determined how, if at all, the outcomes of the arbitrations will affect the Superior Court actions.

A trial date has been set in the first-filed Superior Court action in July 2023.

An estimate of the possible loss or range of loss resulting from awards in the arbitrations or the Superior Court litigation cannot be made at this time.

On December 2, 2022, the arbitrator issued a final award finding that Sorrento had breached the two exclusive license agreements with NantCell and NANTibody.

The arbitrator awarded NantCell approximately $ 156.8 million and NANTibody approximately $ 16.7 million, plus post-award interest accruing at a daily rate.

On December 21, 2022, NantCell and NANTibody filed petitions in the Superior Court to confirm the arbitration award;

on January 16, 2023, Sorrento filed a response to the petitions and moved to vacate the award.

On February 7, 2023, after a hearing, the Superior Court entered orders confirming the arbitration award and denying Sorrento’s motion to vacate.

The Superior Court entered judgments against Sorrento in the aggregate amount of approximately $ 176.4 million plus 10 % post-judgment interest, of which approximately $ 159.4 million is payable to NantCell, and the remainder of which is payable to NANTibody.

On February 13, 2023, Sorrento informed counsel to the company that it had filed a Chapter 11 proceeding in the U.S.

District Court for the Southern District of Texas, In re:

Sorrento Therapeutics, Inc., et al., Case No.

23-bk-90085 (Bankr.

The company intends to continue to pursue vigorously, consistent with its rights in light of Sorrento’s Chapter 11 filing, the collection of the judgments from Sorrento, but we make no assurances that we will receive the full amount or with respect to the timing of our receipt of any funds.

As of March 31, 2023, we have not determined the amount we are likely to recover, and thus have not recorded any receivables in relation to the judgments.

The Superior Court action remains pending, and it remains to be determined how, if at all, the award in the arbitration will affect the Superior Court action.

An estimate of the possible loss or range of loss resulting from the Superior Court litigation cannot be made at this time.

Shenzhen Beike Biotechnology Co.

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Among other things, Beike alleges that we failed to use commercially reasonable efforts to deliver to Beike materials and data related to N-803.

Beike is seeking specific performance, or in the alternative, damages for the alleged breaches.

On September 25, 2020, the parties entered into a standstill and tolling agreement under which, among other things, the parties affirmed they will perform certain of their obligations under the license agreement by specified dates and agreed that all deadlines in the arbitration are indefinitely extended.

The standstill agreement may be terminated by any party on ten calendar days’ notice, and upon termination, the parties will have the right to pursue claims arising from the license agreement in any appropriate tribunal.

The parties have been providing periodic updates to the International Chamber of Commerce confirming a stay of all proceedings during the standstill.

Beike is seeking specific performance and declaratory relief for the alleged breaches.

On September 25, 2020, the parties entered into a standstill and tolling agreement (standstill agreement) under which, among other things, the parties affirmed they will perform certain of their obligations under the license agreement by specified dates and agreed that all deadlines in the arbitration are indefinitely extended.

The standstill agreement could be terminated by any party on ten calendar days’ notice, and upon termination, the parties had the right to pursue claims arising from the license agreement in any appropriate tribunal.

On March 20, 2023, we terminated the standstill agreement, and on April 11, 2023, Beike served an amended Request for Arbitration.

We have until May 19, 2023 to file a response.

Given that this action remains at the pleading stage and no discovery has occurred, it remains too early to evaluate the likely outcome of the case or to estimate any range of potential loss.

We believe the claims lack merit and intend to defend the case vigorously and further believe that we may have counterclaims.

Litigation Related to the Merger with ImmunityBio, Inc.

In connection with the Merger with NantCell, Inc.

(formerly known as ImmunityBio, Inc., a private company), a Delaware corporation, via a wholly-owned subsidiary of NantKwest, several complaints were filed as individual actions in the United States District Courts, and subsequently were voluntarily dismissed (the Merger Actions).

The Merger Actions generally alleged that the Definitive Proxy Statement filed with the SEC on February 2, 2021 misrepresented and/or omitted certain purportedly material information relating to financial projections, analysis performed by the financial advisor to NantKwest’s Special Committee, alleged past engagements of the Special Committee’s financial advisor and industry consultant, and the terms of the engagement of such consultant.

The Merger Actions asserted violations of Section 14(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 14a-9 promulgated thereunder against all defendants and violations of Section 20(a) of the Exchange Act against NantKwest’s directors.

The Merger Actions sought, among other things, an injunction enjoining the stockholder vote on the Merger and the consummation of the Merger unless and until certain additional information was disclosed to NantKwest’s stockholders, costs of the action, including plaintiffs’ attorneys’ fees and experts’ fees, and other relief the Court may deem just and proper.

Neither the stockholder vote on the Merger nor the Merger were enjoined and both occurred on March 8 and March 9, 2021, respectively.

The Merger Actions were voluntarily dismissed on March 25, 2022.

We did not enter into any significant contracts during the nine months ended September 30, 2022, other than those disclosed in these condensed consolidated financial statements.

We believe the claims lack merit and intend to defend the case vigorously and that we may have counterclaims.

Stipulation of Settlement

In 2019, following approval by our Board of Directors, we entered into a settlement agreement (the Stipulation of Settlement) with three stockholders of the company, each of whom had submitted a stockholder demand for the Board of Directors to take action to remedy purported harm to the company resulting from certain alleged wrongful conduct concerning, among other things, disclosures about Dr.

Soon-Shiong’s compensation and a related-party lease agreement.

The Stipulation of Settlement called for us to adopt certain governance changes, and for the three stockholders to file a stockholder derivative action in the Superior Court of the State of California, County of San Diego, followed by an application for court approval of the Stipulation of Settlement.

The court entered an order preliminarily approving the Stipulation of Settlement.

Pursuant to the Stipulation of Settlement, we provided stockholders with notice of the settlement and the final settlement hearing.

We did not enter into any significant contracts during the three months ended March 31, 2023, other than those disclosed in these condensed consolidated financial statements.

In addition, we are also a party to various contracts with contract research organizations and contract manufacturers that generally provide for termination on notice, with the exact amounts in the event of termination to be based on the timing of the termination and the terms of the agreement.

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Supplemental balance sheet information related to our leases is as follows (in thousands):

September 30,

2023 December 31,

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Information regarding our lease terms is as follows:

September 30,

2023 December 31,

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Operating leases 6.4 years 6.6 years

Finance leases 2.0 years N/A

Finance leases 1.5 years 1.8 years

Weighted-average discount rate:

Operating leases 10.6 % 10.5 %

Finance leases 11.7 % N/A

Finance leases 11.7 % 11.7 %

The components of lease expense consist of the following (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Unaudited) (Unaudited)

Operating lease costs $ 2,921 $ 2,308

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Cash paid for amounts included in the measurement of lease liabilities is as follows (in thousands):

Nine Months Ended

September 30,

Three Months Ended

Cash paid for operating leases (excluding variable lease costs) $ 3,179 $ 2,151

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Operating cash flow from finance leases 4 —

Future minimum lease payments as of September 30, 2022, including $ 14.8 million related to options to extend lease terms that are reasonably certain of being exercised, are presented in the following table (in thousands).

Future minimum lease payments as of March 31, 2023, including $ 14.8 million related to options to extend lease terms that are reasonably certain of being exercised, are presented in the following table (in thousands).

Common area maintenance costs and taxes are not included in these payments.

Years ending December 31:

2022 (excluding the nine months ended September 30, 2022)

2023 (excluding the three months ended March 31, 2023)

$ 6,748 $ 66 $ 6,814

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Tenant improvement allowance receivable 2,941 — 2,941

Present value of operating lease liabilities $ 50,926 $ 159 $ 51,085

3530 John Hopkins Court

In April 2022, we extended our existing lease for 44,681 rentable square feet at 3530 John Hopkins Court in San Diego, California from July 31, 2023 to July 31, 2030 (the Extended Lease Term).

This facility is used primarily as a research laboratory and our corporate offices.

The Extended Lease Term will commence on August 1, 2023, and includes an option to extend the lease for one five-year term through July 31, 2035.

The base rent effective during the Extended Lease Term will be approximately $ 323,937 per month with an annual increase of 3 % beginning on August 1, 2024.

At the beginning of the option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement).

We will receive a rent abatement for the first seven months of the Extended Lease Term beginning on August 1, 2023, and a tenant improvement allowance of $ 0.7 million from the landlord for costs and expenses associated with the construction of tenant improvements that can be used during the 12-month period ending on August 1, 2024 .

Other than the lease described above, the acquisition of a leasehold interest at the Dunkirk Facility discussed in Note 6 , Collaboration and License Agreements and Acquisition , the entry into new related-party leases and the termination of an existing related-party lease discussed in Note 10 , Related-Party Agreements , there have been no other material changes related to our existing lease agreements from those disclosed in Note 8 of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K filed with the SEC on March 1, 2022.

Present value of lease liabilities $ 49,133 $ 122 $ 49,255

There have been no other material changes related to our existing lease agreements from those disclosed in Note 8, Lease Arrangements , of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K filed with the SEC on March 1, 2023.

Related-Party Debt

On August 31, 2022, the company entered into a new promissory note and executed amendments and restated several of our outstanding promissory notes with entities under common control and affiliated with Dr.

Below is a summary of such promissory notes.

$ 125.0 million Variable-Rate Promissory Note

On August 31, 2022, the company executed a $ 125.0 million promissory note with Nant Capital, LLC (Nant Capital), an entity affiliated with Dr.

Related-Party Convertible Note at Fair Value

On March 31, 2023, the company executed a $ 30.0 million promissory note with Nant Capital, LLC (Nant Capital), an affiliated entity under common control of our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder.

This note bears interest at Term Secured Overnight Financing Rate (SOFR) plus 8.0 % per annum.

The accrued interest on this note shall be payable quarterly on the last business day of March, June, September and December, commencing on September 30, 2022.

The outstanding principal amount and any accrued and unpaid interest are due on December 31, 2023.

The company may prepay this note at any time, in whole or in part, without premium or penalty.

The company received net proceeds of $ 124.4 million, net of a $ 0.6 million origination fee paid to the lender.

The company intends to use the net proceeds from this note for commercialization efforts, clinical trials, working capital, and general corporate purposes.

The interest paid in cash amounted to $ 1.2 million for the three months ended September 30, 2022.

$ 300.0 million Variable-Rate Promissory Note

On August 31, 2022, the company amended and restated its $ 300.0 million variable-rate promissory note with Nant Capital.

Prior to the amendment and restatement, the outstanding balance due under the promissory note was due and payable on December 17, 2022, the loan bore interest at Term SOFR + 5.4 %, which was payable quarterly commencing on March 17, 2022, and the company could and can continue to prepay the outstanding principal (together with accrued and unpaid interest), in whole or in part, upon five business days’ prior written notice to the lender.

The terms of this promissory note were amended and restated to extend the maturity date of the loan to December 31, 2023, increase the interest rate on the loan to Term SOFR + 8.0 % per annum, and reset the quarterly interest payment date from the 17th of the month to the last business day of March, June, September and December, commencing on September 30, 2022.

No other material terms or conditions of this variable-rate promissory note were modified as part of the August 31, 2022 amendment and restatement.

In the event of a default on the loan (as defined in both the original and amended and restated promissory notes), including if the company does not repay the loan at maturity, the company had and continues to have the right, at its sole option, to convert the outstanding principal amount and accrued and unpaid interest due under this note into fully paid and non-assessable shares of the company’s common stock at a price per share equal to $ 5.67 .

Fixed-Rate Convertible Promissory Notes

On August 31, 2022, the company also amended and restated an aggregate of $ 315.1 million (including outstanding principal and accrued and unpaid interest) of fixed-rate promissory notes held by entities affiliated with Dr.

The outstanding principal amount and any accrued and unpaid interest are due on December 31, 2023 or upon the occurrence and continuation of an Event of Default (as defined in the note).

The interest on this note will be paid on a quarterly basis beginning on June 30, 2023.

The company may prepay the outstanding promissory note, at any time, in whole or in part, without penalty.

The noteholder may convert the balance of the convertible promissory note and accrued interest in whole at its option following the Conversion Price Date, which is the trading day prior to the opening of the next open trading window, as determined by the company’s board of directors in accordance with the company’s Insider Trading Policy.

The conversion price is equal to the greater of (i) the NASDAQ Official Closing Price and (ii) the consolidated closing bid price of the company’s common stock on the Conversion Price Date.

There is no floor on the conversion price for this convertible note, therefore, as of March 31, 2023 we cannot determine the total number of shares issuable upon conversion that may occur in the future.

The company received net proceeds of $ 29.9 million from this financing, net of a $ 0.1 million origination fee paid to the lender.

The note is accounted for under ASC 825-10-15-4 FVO election.

Under the FVO election, the note is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date.

With each such remeasurement, the note will be adjusted to fair value, with the change in fair value recognized in other income (expense), net , on the condensed consolidated statement of operations, except that the change in the fair value resulting from a change in the instrument-specific credit risks are recognized as a component of other comprehensive income .

As of March 31, 2023, we had a balance of $ 29.9 million in a related-party convertible note at fair value , on the condensed consolidated balance sheets related to the convertible promissory note measured at fair value.

Related-Party Convertible Notes

On August 31, 2022, the company amended and restated an aggregate of $ 315.1 million (including outstanding principal and accrued and unpaid interest) of fixed-rate promissory notes held by entities affiliated with Dr.

Prior to the amendments and restatements, these notes bore and continue to bear interest at a per annum rate ranging from 3.0 % to 6.0 %, provide that the outstanding principal was and continues to be due and payable on September 30, 2025, and accrued and unpaid interest was or continues to be payable either upon maturity or, with respect to one of the notes, on a quarterly basis.

Prior to the amendments and restatements, the company could and can continue to prepay the outstanding principal (together with accrued and unpaid interest), either in whole or in part, at any time without premium or penalty and without the prior consent of the lender, now subject to an advance notice period of at least five business days during which the lender can convert the amount requested to be prepaid by the company into shares of the company’s common stock, as part of the amendment and restatement described below.

The terms of these fixed-rate promissory notes were amended and restated to include a conversion feature that gives each lender the right at any time, including upon notice of prepayment, at its sole option, to convert the entire outstanding principal amount and accrued and unpaid interest due under each note at the time of conversion into shares of the company’s common stock at a price of $ 5.67 per share.

The terms of these fixed-rate promissory notes were amended and restated to include a conversion feature that gives each lender, at its sole option, at any time (other than when the lender is in receipt of a written notice of prepayment from the borrower), the right to convert the entire outstanding principal amount and accrued and unpaid interest due under each note at the time of conversion into shares of the company’s common stock at a price of $ 5.67 per share.

Upon receipt of a written notice of prepayment from the borrower, the lender has the right, at its option, to convert the outstanding principal amount to be prepaid and the accrued and unpaid interest thereon (as specified in the notice of prepayment) into shares of the company’s common stock at a price of $ 5.67 per share.

No other material terms or conditions of these fixed-rate promissory notes were modified as part of the August 31, 2022 amendments and restatements.

Since all of the above promissory notes were entered into or amended at the same time and with entities under common control, the company determined that the promissory notes were required to be evaluated collectively to accurately capture the economics of the transactions entered in contemplation of each other and contemporaneously.

ASC 470-50, Debt – Modifications and Extinguishments, provides that a modification or an exchange that adds or eliminates a substantive conversion option as of the conversion date would always be considered substantial and require extinguishment accounting.

Accordingly, as a result of the addition of the conversion feature to the fixed-rate promissory notes, the fixed-rate promissory notes and the variable-rate promissory notes were determined to be extinguished given the contemporaneous nature of the amendments.

The company performed a valuation of the fixed-rate promissory notes and variable-rate promissory notes before and after amendments.

Under this model, the company calculated a gain on extinguishment of $ 82.9 million, representing the difference between the fair value of the new and amended promissory notes and the carrying value of the extinguished debt, net of any unamortized related-party notes discounts plus the cash proceeds from the new promissory note.

Since the debt was obtained from entities under common control, such gain was recorded in additional paid-in capital , on the condensed consolidated statement of stockholders’ deficit for the three and nine months ended September 30, 2022.

Also, the difference between face values of the new and amended promissory notes (and accrued interest on the date of the amendment) and the fair values of the new and restated promissory notes was recorded as a debt discount to be amortized as interest expense over the remaining term (or until conversion in the case of fixed-rate promissory notes) of the respective promissory notes.

The company recorded amortization of the debt discount totaling $ 4.2 million in interest expense, on the condensed consolidated statement of operations during the three months ended September 30, 2022.

The fair values of the promissory notes without a holder conversion option were estimated using discounted cash flow analyses, based on market rates available to the company for similar debt at issuance after consideration of default and credit risk and the level of subordination.

The fair values of the fixed-rate promissory notes, which were each modified to include a holder conversion option, were determined based on a binomial lattice convertible note model.

The analysis involved the construction of various intermediate lattices:

stock price tree, conversion value tree, conversion probability tree, and discount rate tree.

Since certain of the factors analyzed are considered to be unobservable inputs, both the discounted cash flow model and the lattice model are considered to be Level 3 valuations.

Significant unobservable inputs used for the discounted cash flow analysis included market yields from 18.0 % to 24.8 % and a risk free rate of 4.1 %, and the significant unobservable inputs used for the binomial lattice model included a volatility of 84.9 %, a market yield of 17.4 % and a risk free rate of 3.5 %.

As of March 31, 2023 and December 31, 2022, the carrying value of the fixed-rated convertible promissory notes of $ 245.6 million and $ 241.3 million, respectively, was recorded in related-party convertible notes and accrued interest, net of discount, on the condensed consolidated balance sheets.

During the three months ended March 31, 2023 and 2022, the company made interest payments of $ 0.6 million and $ 0.6 million, respectively, related to our $ 40.0 million promissory note.

Related-Party Nonconvertible Notes

As of March 31, 2023, the company had a promissory note outstanding with Nant Capital for $ 300.0 million in principal and a carrying balance of $ 272.2 million, net of unamortized discount of $ 27.8 million.

The note bears an interest rate of Term SOFR plus 8.0 % per annum, payable on a quarterly basis.

The company made interest payments of $ 9.4 million and $ 4.4 million during the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, the company had a promissory note outstanding with Nant Capital for $ 125.0 million in principal and a carrying balance of $ 119.6 million, net of unamortized discount of $ 5.4 million.

The note bears an interest rate of Term SOFR plus 8.0 % per annum, payable on a quarterly basis.

The company may prepay the outstanding promissory note, at any time, in whole or in part, without penalty.

The company made an interest payment of $ 3.9 million during three months ended March 31, 2023.

As of March 31, 2023, the company had a promissory note outstanding with Nant Capital for $ 50.0 million in principal and a carrying balance of $ 49.8 million, net of unamortized discount of $ 0.2 million.

The note bears an interest rate of Term SOFR plus 8.0 % per annum, payable on a quarterly basis.

The company may prepay the outstanding promissory note, at any time, in whole or in part, without penalty.

In the event of a Specified Transaction (as defined in the loan agreement), the noteholder can request the outstanding principal and interest due on the loan be repaid in full upon consummation of such Specified Transaction.

The company made a cash payment of $ 1.6 million during three months ended March 31, 2023.

Our related-party debt is summarized below (in thousands):

Balances at September 30, 2022

Balances at March 31, 2023

Year Interest

Rate Outstanding

Advances Accrued

Rate Principal

Amount Accrued

Discounts Total

Related-Party Notes:

Related-Party Nonconvertible Notes:

Nant Capital (1) 2023 Term SOFR + 8.0 %

$ 475,000 $ — $ 33,372 $ 441,628

Related-Party Convertible Note

at Fair Value:

Nant Capital (1) 2023 Term SOFR + 8.0 %

30,000 — — 29,850

Total related-party notes 425,000 — 51,707 373,293

Related-Party Convertible Notes:

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NantMobile, LLC 2025 3.0 % 55,000 5,554 5,482 55,072

NantWorks 2025 5.0 % 43,418 12,654 4,995 51,077

NantCancerStemCell, LLC 2025 5.0 % 33,000 7,181 3,579 36,602

NantCancerStemCell, LLC (NCSC) 2025 5.0 % 33,000 8,176 3,006 38,170

Total related-party convertible notes 233,226 31,713 19,299 245,640

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_______________

(1) The interest rate on our related-party variable-rate notes as of September 30, 2022 was 11.55 %.

(1) The interest rate on our related-party variable-rate notes as of March 31, 2023 was 12.89 %.

Balances at December 31, 2022

Year Interest

Rate Outstanding

Advances Accrued

Debt Issuance

Related-Party Note:

Rate Principal

Amount Accrued

Discounts Total

Related-Party Nonconvertible Notes:

Nant Capital (1) 2022 Term SOFR + 8.0 %

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NantMobile 2025 3.0 % 55,000 5,110 5,978 54,132

NantWorks 2025 5.0 % 43,418 10,649 — 54,067

NCSC 2025 5.0 % 33,000 7,684 3,294 37,390

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_______________

(1) The interest rate on our related-party variable-rate note as of December 31, 2021 was 5.47 %.

The following table summarizes the estimated future contractual obligations for our related-party debt as of September 30, 2022 (unaudited;

(1) The interest rate on our related-party variable-rate notes as of December 31, 2022 was 12.59 %.

The following table summarizes the estimated future contractual obligations for our related-party debt as of March 31, 2023 (unaudited;

in thousands):

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Notes Non-convertible

2022 (excluding the nine months ended

September 30, 2022)

$ — $ — $ 605 $ 12,376 $ 12,981

2023 (excluding the three months ended

March 31, 2023)

$ 30,000 $ 475,000 $ 4,724 $ 46,131 $ 555,855

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Interest payments on our variable-rate notes are calculated based on Term SOFR plus the contractual spread per the loan agreements.

The rate on our variable-rate notes as of September 30, 2022 was 11.55 %.

The rate on our variable-rate notes as of March 31, 2023 was 12.89 %.

Related-Party Agreements

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Below is a summary of outstanding balances and a description of significant relationships (in thousands):

September 30,

2023 December 31,

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$ 1,294 $ 1,294

Due from related party–Brink Biologics 35 271

Due from related parties–Various 135 325

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Due to related party–Duley Road, LLC $ 1,356 $ 1,431

Due to related party–NantWorks — 1,113

Due to related party–NantBio, Inc.

Due to related party–NantWorks 592 986

Due to related party–Immuno-Oncology Clinic, Inc.

Due to related party–Various 365 —

Total due to related parties $ 2,932 $ 3,469

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As described below, we have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new immunotherapies for our product pipeline.

Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman and Global Chief Scientific and Medical Officer.

Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder.

NantWorks, LLC

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We are charged for the services at cost plus reasonable allocations of employee benefits, facilities, and other direct or fairly allocated indirect costs that relate to the employees providing the services.

For the nine months ended September 30, 2022 and 2021, we recorded $ 3.0 million and $ 4.2 million, respectively, in selling, general and administrative expense , and $ 0.6 million and $ 0.4 million, respectively, of expense reimbursements under this arrangement in research and development expense , on the condensed consolidated statements of operations.

For the three months ended March 31, 2023 and 2022, we recorded $ 1.0 million and $ 1.3 million, respectively, in selling, general and administrative expense , and $ 0.4 million of expense reimbursements and an immaterial amount, respectively, under this arrangement in research and development expense , on the condensed consolidated statements of operations.

These amounts exclude certain general and administrative expenses provided by third-party vendors directly for our benefit, which were reimbursed to NantWorks based on those vendors’ invoiced amounts without markup by NantWorks.

As of September 30, 2022, we did not have a net amount due from or due to NantWorks.

As of December 31, 2021, we owed NantWorks a net amount of $ 1.1 million for all agreements between the two affiliates, which was included in due to related parties, on the condensed consolidated balance sheets.

We also recorded $ 2.3 million and $ 2.2 million of prepaid expenses for services that have been passed through to the company from NantWorks as of September 30, 2022 and December 31, 2021, respectively, which are included in prepaid expenses and other current assets , on the condensed consolidated balance sheets.

As of March 31, 2023 and December 31, 2022, we owed NantWorks net amounts of $ 0.6 million and $ 1.0 million, respectively, for all agreements between the two affiliates, which are included in due to related parties, on the condensed consolidated balance sheets.

We also recorded $ 2.1 million and $ 2.0 million of prepaid expenses for services that have been passed through to the company from NantWorks as of March 31, 2023 and December 31, 2022, respectively, which are included in prepaid expenses and other current assets , on the condensed consolidated balance sheets.

Facility License Agreement

In 2015, we entered into a facility license agreement with NantWorks for approximately 9,500 square feet of office space in Culver City, California, which was converted to a research and development laboratory and a cGMP manufacturing facility.

In 2015, we entered into a facility license agreement with NantWorks for approximately 9,500 rentable square feet of office space in Culver City, California, which was converted to a research and development laboratory and a cGMP manufacturing facility.

In 2020, we amended this agreement to extend the term of this license agreement through December 31, 2021.

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The space continues to be rented on a month-to-month basis, which can be terminated by either party with at least 30 days’ prior written notice to the other party.

We recorded license fee expense for this facility totaling $ 1.6 million and $ 0.5 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations.

We recorded license fee expense for this facility totaling $ 0.8 million and $ 0.2 million for the three months ended March 31, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations.

Immuno-Oncology Clinic, Inc.

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As a result, we wrote down the remaining value of our prepaid asset and recorded approximately $ 4.4 million in research and development expense , on the condensed consolidated statement of operations for the year ended December 31, 2021 .

We recorded $ 2.0 million and $ 1.4 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations related to clinical trial and transition services provided by the Clinic.

As of September 30, 2022, we have no balances due from or to the Clinic.

We continue productive negotiations with potential partners around alternative structures, but there can be no assurance that we will be successful.

We recorded $ 0.6 million and $ 0.4 million for the three months ended March 31, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations related to clinical trial and transition services provided by the Clinic.

As of March 31, 2023 and December 31, 2022 , we owed the Clinic an immaterial amount and $ 0.1 million, respectively .

NantBio, Inc.

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The agreement has an initial term of five years and renews automatically for successive one-year terms unless terminated by either party in the event of material default upon prior written notice of such default and the failure of the defaulting party to remedy the default within 30 days of the delivery of such notice, or upon 90 days’ prior written notice by NCSC.

We recognized no revenue for the nine months ended September 30, 2022 and $ 0.3 million of revenue for the nine months ended September 30, 2021.

We recorded $ 0.1 million and $ 0.1 million of deferred revenue for bioreactors that were delivered but not installed in accrued expenses and other liabilities , on the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021, we recorded $ 0.9 million in due to related parties , on the condensed consolidated balance sheets related to this agreement.

We recognized no revenue for the three months ended March 31, 2023 and no revenue for the three months ended March 31, 2022.

We recorded $ 0.1 million and $ 0.1 million of deferred revenue for bioreactors that were delivered but not installed in accrued expenses and other liabilities , on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023 and December 31, 2022, we recorded $ 0.9 million in due to related parties , on the condensed consolidated balance sheets related to this agreement.

In 2018, we entered into a shared service agreement pursuant to which we are charged for services at cost, without mark-up or profit by NantBio, but including reasonable allocations of employee benefits that relate to the employees providing the services.

In April 2019, we agreed with NantBio to transfer certain NantBio employees and associated research and development projects, comprising the majority of NantBio’s business, to the company.

As of September 30, 2022 and December 31, 2021, we recorded a net receivable from NantBio of $ 1.3 million for amounts we paid on behalf of NantBio during the year ended December 31, 2019.

In April 2019, we agreed with NantBio to transfer certain NantBio employees and associated research and development projects to the company.

As of March 31, 2023 and December 31, 2022, we recorded a net receivable from NantBio of $ 1.3 million for amounts we paid on behalf of NantBio during the year ended December 31, 2019.

605 Doug St, LLC

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The base rent is approximately $ 72,385 per month, with annual increases of 3 % that began in July 2017.

We recorded lease expense for this facility of $ 0.7 million and $ 0.7 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations.

We recorded lease expense for this facility of $ 0.2 million and $ 0.2 million for the three months ended March 31, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations.

Duley Road, LLC

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The base rent for the two leases is approximately $ 35,800 per month, with annual increases of 3 %.

As of September 30, 2022 and December 31, 2021, we recorded $ 0.9 million of leasehold improvement payables, respectively, and $ 0.8 million and $ 0.5 million of lease-related payables to Duley Road, which were included in due to related parties , on the condensed consolidated balance sheets.

We recorded rent expense for these leases totaling $ 0.6 million and $ 0.7 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations.

As of March 31, 2023 and December 31, 2022, respectively, we recorded $ 0.9 million and $ 0.9 million of leasehold improvement payables, and $ 0.5 million and $ 0.6 million of lease-related payables, to Duley Road, which were included in due to related parties , on the condensed consolidated balance sheets.

We recorded rent expense for these leases totaling $ 0.2 million and $ 0.2 million for the three months ended March 31, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations.

605 Nash, LLC

In February 2021 , but effective on January 1, 2021 , we entered into a lease agreement with 605 Nash, a related party, whereby we leased approximately 6,883 square feet (the Initial Premises) i n a two story mixed use building containing approximately 64,643 rentable square feet on 605-607 Nash Street in El Segundo, California.

In February 2021 , but effective on January 1, 2021 , we entered into a lease agreement with 605 Nash, a related party, whereby we leased approximately 6,883 rentable square feet (the Initial Premises) i n a two story mixed use building containing approximately 64,643 rentable square feet on 605-607 Nash Street in El Segundo, California.

This facility is used primarily for pharmaceutical development and manufacturing purposes.

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The amended lease provides for a tenant improvement allowance of approximately $ 2.6 million for costs and expenses related to improvements made by us to the Expansion Premises.

We recorded rent expense for the Initial and Expansion Premises leases totaling $ 1.6 million and $ 1.2 million for the nine months ended September 30, 2022 and 2021, respectively, i n research and development expense, on the condensed consolidated statements of operations

557 Doug St, LLC

Effective September 27, 2021, we entered into a lease agreement with Nant Capital, a related party controlled by Dr.

Soon-Shiong, under which we leased 557 South Douglas Street in El Segundo, California.

Effective May 31, 2022, we executed a lease termination agreement with Nant Capital under which we received a full refund of the first month’s rent and security deposit totaling $ 0.2 million that we paid upon execution of the lease.

We recorded year-to-date rent expense of $ 0.4 million prior to the termination of the lease, in research and development expense , on the condensed consolidated statement of operations.

We recognized a gain of $ 0.6 million on the disposal of this lease for the nine months ended September 30, 2022 in other income, net , on the condensed consolidated statement of operations.

We recorded rent expense for the Initial and Expansion Premises leases totaling $ 0.5 million and $ 0.5 million for the three months ended March 31, 2023 and 2022, respectively, i n research and development expense, on the condensed consolidated statements of operations.

420 Nash, LLC

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The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance and operating expenses during the term of the lease.

We received a rent abatement for the first month of the lease, and a one-time improvement allowance of $ 15,000 from the landlord that was credited against base rent obligations for the second month of the lease.

The company has options to extend the lease term for two additional consecutive periods of five years each.

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We have included the first option to extend the lease term for five years as part of the initial term of the lease as it is reasonably certain that we will exercise the option, which implies lease expiration in September 2031.

We recorded $ 0.4 million of rent expense related to this lease for the nine months ended September 30, 2022 in research and development expense , on the condensed consolidated statement of operations.

We recorded $ 0.1 million and $ 0.1 million of rent expense related to this lease for the three months ended March 31, 2023 and 2022, respectively, in research and development expense , on the condensed consolidated statements of operations.

23 Alaska, LLC

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The base rent is approximately $ 139,400 per month with an annual increase of 3 % on May 1 of each year beginning in 2023 during the initial term.

We will receive a rent abatement for the second through sixth month of the lease.

We are also required to pay $ 7,600 per month for parking during the initial term and extension term, if exercised.

The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance, and operating expenses during the term of the lease.

The company is responsible for the costs associated with the build-out of the premises and will received a one-time tenant improvement allowance of approximately $ 0.9 million from the landlord.

The company has an option to extend the lease term for one additional consecutive five-year period.

At the beginning of the option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement) with an annual increase of 3 % during the option term.

We recorded $ 0.6 million of rent expense for this lease for the nine months ended September 30, 2022 in research and development expense , on the condensed consolidated statement of operations.

We recorded $ 0.4 million of rent expense for this lease for the three months ended March 31, 2023 in research and development expense , on the condensed consolidated statement of operations.

Warrant Liabilities

December 2022 Warrants

On December 12, 2022, in connection with the sale of 9,090,909 shares of our common stock to an institutional investor, we entered into a warrant agreement that allows such investor to purchase up to 9,090,909 shares at an exercise price of $ 6.60 per share.

We classified the warrants as a liability at their fair value determined using the Black-Scholes option pricing model.

The fair value of the warrants was estimated at $ 35.1 million at the issuance date.

Of the total placement agent fees and other offering costs of $ 3.0 million, $ 1.1 million were allocated to the warrants and recorded to other income (expense), net on the date of the transaction.

As of March 31, 2023, all 9,090,909 underlying warrants were outstanding, As of March 31, 2023 and December 31, 2022, the estimated fair value of the warrants were $ 5.8 million and $ 21.6 million, respectively .

The decrease in fair value of $ 15.8 million was recognized in other income (expense), net , on the condensed consolidated statement of operations for the three months ended March 31, 2023.

February 2023 Warrants

On February 15, 2023, in connection with the sale of 14,072,615 shares of our common stock to institutional investors, we entered into a warrant agreement that allows such investors to purchase up to 14,072,615 shares at an exercise price of $ 4.26 per share.

We classified the warrants as a liability at their fair value determined using the Black-Scholes option pricing model.

The fair value of warrants were estimated at $ 23.7 million at the issuance date.

Of the total placement agent fees and other offering costs of $ 3.0 million , $ 1.0 million were allocated to the warrants and recorded to other income (expense), net, on the date of the transaction .

As of March 31, 2023, all 14,072,615 underlying warrants were outstanding, with an estimated fair value of $ 12.0 million .

The decrease in fair value of $ 11.7 million is recognized in other income (expense), net , on the condensed consolidated statement of operations for the three months ended March 31, 2023.

Stockholders’ Deficit

Stock Authorized for Issuance

Effective February 1, 2022, ImmunityBio amended and restated its Amended and Restated Certificate of Incorporation to increase the number of shares of common stock that the company is authorized to issue from 500,000,000 shares, $ 0.0001 par value per share, to 900,000,000 shares, $ 0.0001 par value per share.

The number of shares of preferred stock that the company is authorized to issue remains unchanged at 20,000,000 shares.

Stock Repurchases

No shares of our common stock were repurchased during the nine months ended September 30, 2022 and 2021 under the company’s 2015 Share Repurchase Program.

As of September 30, 2022, $ 18.3 million remained authorized to use for share repurchases under the program.

No shares of our common stock were repurchased during the three months ended March 31, 2023 and 2022 under the company’s 2015 Share Repurchase Program.

As of March 31, 2023, $ 18.3 million remained authorized to use for share repurchases under the program.

Shelf Registration Statement

During February 2023, we filed a $ 750.0 million shelf registration statement with the SEC on Form S-3 for the offering and sale of equity and equity-linked securities, including common stock, preferred stock, debt securities, depositary shares, warrants to purchase common stock, preferred stock or debt securities, subscription rights, purchase contracts, and units.

In February 2023, we sold shares of our common stock and warrants valued at $ 110.0 million under the shelf.

As of March 31, 2023, we had $ 640.0 million available for use under the shelf.

See “ —Registered Direct Offerings ” below.

This available shelf is in addition to the Open Market Sale Agreement described below.

Open Market Sale Agreement

On April 30, 2021, we entered into an open market sale agreement (the Sale Agreement) with respect to an ATM offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering price of up to $ 500.0 million through our sales agent.

In April 2021, we entered into the Sale Agreement with respect to an ATM offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock through our sales agent.

We pay our sales agent a commission of up to 3.0 % of the gross sales proceeds of any shares of our common stock sold through them under the Sale Agreement, and also have provided them with customary indemnification and contribution rights.

We issued no shares under the ATM during the nine months ended September 30, 2022.

As of September 30, 2022, we had $ 330.8 million available for future stock issuances under the ATM.

We issued no shares under the ATM during the three months ended March 31, 2023.

As of March 31, 2023, we had $ 225.4 million available for future stock issuances under the ATM.

We are not obligated to sell any shares and may at any time suspend solicitation and offers under the Sale Agreement.

The Sale Agreement may be terminated by us at any time given written notice to the sales agent for any reason or by the sales agent at any time by giving written notice to us for any reason or immediately under certain circumstances, and shall automatically terminate upon the issuance and sale of all of the shares.

Registered Direct Offerings

On December 12, 2022, we entered into a securities purchase agreement with an institutional investor for the sale of 9,090,909 shares of our common stock, as well as warrants that allow such investor to purchase an additional 9,090,909 shares of common stock at an exercise price of $ 6.60 per share, for a purchase price of $ 5.50 per share and accompanying warrant, generating net proceeds of approximately $ 47.0 million, after deducting placement agent fees and other offering costs of $ 3.0 million, of which $ 1.9 million was allocated to the sale of our common stock and recognized as additional-paid-in capital , on the consolidated statement of stockholders’ deficit, for the year ended December 31, 2022.

The warrants became immediately exercisable and expire two years after the initial issuance date.

On February 15, 2023, we entered into a securities purchase agreement with certain institutional investors for the sale of 14,072,615 shares of our common stock, as well as warrants that allow such investors to purchase an additional 14,072,615 shares of common stock at an exercise price of $ 4.26 per share, for an aggregate purchase price of $ 3.55 per share and accompanying warrant.

This transaction generated net proceeds of approximately $ 47.0 million, after deducting placement agent fees and other estimated offering costs of $ 3.0 million, of which $ 2.0 million was allocated to the sale of our common stock and recognized in additional-paid-in capital, on the condensed consolidated statement of stockholders’ deficit for the three months ended March 31, 2023.

The warrants became immediately exercisable and expire two years after the initial issuance date.

The closing of the offering occurred on February 17, 2023.

We currently intend to use the net proceeds from this offering, together with other available funds, to progress our pre-commercialization efforts and clinical development programs, fund other research and development activities, for capital expenditures, and for other general corporate purposes.

We may also use a portion of the net proceeds to license intellectual property or to make acquisitions or investments.

See Note 11 , Warrant Liabilities, for further information.

Stock-Based Compensation

2015 Equity Incentive Plan

At the company’s 2022 Annual Meeting of Stockholders held on June 14, 2022, stockholders approved an amendment to increase the number of shares of common stock authorized for issuance under the 2015 Plan by 19,900,000 shares.

As of September 30, 2022, approximately 18.3 million shares were available for future grants under the 2015 Plan.

As of March 31, 2023, approximately 18.6 million shares were available for future grants under the 2015 Plan.

Stock-Based Compensation

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Unaudited) (Unaudited)

Stock-based compensation expense:

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Stock Options

The following table summarizes stock option activity and related information for the nine months ended September 30, 2022:

The following table summarizes stock option activity and related information for the three months ended March 31, 2023:

(in thousands)

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Forfeited/expired ( 22,224 ) $ 5.83

Outstanding at September 30, 2022

Outstanding at March 31, 2023

9,159,665 $ 9.96 $ 234 7.0

Vested and exercisable at September 30, 2022

Vested and exercisable at March 31, 2023

5,053,597 $ 12.93 $ 234 5.3

On March 23, 2022, the Compensation Committee of the Board of Directors granted option awards to purchase a total of 4,728,634 shares of our common stock pursuant to the 2015 Plan at an exercise price of $ 5.83 per share, the closing price reported on the Nasdaq on the date of grant.

Of the option awards granted, 3,903,634 shares subject to such option awards were awarded to employees of the company (of which 825,000 options were awarded to the company’s named executive officers (NEOs)).

The shares subject to the option shall vest in equal annual installments of 1/3rd on each of the first, second and third anniversaries of March 23, 2022 (the “vesting commencement date”), such that all shares shall be fully vested on the third anniversary of the vesting commencement date, subject to the recipient continuing to be a “service provider” as defined in the 2015 Plan through each applicable vesting date.

The remaining 825,000 shares subject to such option awards were awarded to the company’s NEOs.

Subject to the company’s attainment of a financial goal for the fiscal year ending December 31, 2022, 1/3rd of the shares subject to the option shall vest in equal annual installments on each of the first, second and third anniversaries of the vesting commencement date, such that all shares shall be fully vested on the third anniversary of the vesting commencement date, subject to the recipient continuing to be a “service provider” through each applicable vesting date.

As of September 30, 2022, the unrecognized compensation cost related to outstanding stock options was $ 24.4 million, which is expected to be recognized over a remaining weighted-average period of 2.0 years.

The total intrinsic value of stock options exercised during the nine months ended September 30, 2022 was immaterial.

Cash proceeds received from stock option exercises during the nine months ended September 30, 2022 and 2021 totaled $ 0.1 million and $ 5.0 million, respectively.

As of March 31, 2023, the unrecognized compensation cost related to outstanding stock options was $ 16.7 million, which is expected to be recognized over a remaining weighted-average period of 1.6 years.

The total intrinsic value of stock options exercised during the three months ended March 31, 2023 was $ 0.2 million.

Cash proceeds received from stock option exercises during the three months ended March 31, 2023 and 2022 totaled $ 0.1 million and $ 0.1 million, respectively.

As of December 31, 2022, a total of 3,445,499 vested and exercisable shares were outstanding.

The fair value of stock options issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Nine Months Ended

September 30,

Expected term 5.7 years

Risk-free interest rate 2.6 %

Expected volatility 101.8 %

Dividend yield 0.0 %

Weighted-average grant date fair value $ 4.20

The expected term was estimated using the average of the contractual term and the weighted-average vesting term of the options.

The risk-free interest rate was based on the U.S.

Treasury’s rates for U.S.

Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

The expected volatility was estimated based on the historical volatility of our common stock.

The assumed dividend yield was based on our expectation of not paying dividends in the foreseeable future.

Restricted Stock Units

The following table summarizes RSU activity during the nine months ended September 30, 2022:

The following table summarizes RSU activity during the three months ended March 31, 2023:

Nonvested balance at December 31, 2022

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Forfeited/canceled ( 252,106 ) $ 4.38

Nonvested balance at September 30, 2022

Nonvested balance at March 31, 2023

6,188,292 $ 18.45

As of September 30, 2022, there was $ 80.8 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 2.9 years.

The total intrinsic value of RSUs vested during the nine months ended September 30, 2022 was $ 1.6 million.

As of March 31, 2023, there was $ 61.9 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 2.6 years.

The total intrinsic value of RSUs vested during the three months ended March 31, 2023 was $ 0.9 million.

RSUs awarded to employees and consultants of affiliated companies are accounted for as stock-based compensation in accordance with ASU 2018-07, Compensation—Stock Compensation (Topic 718) , as the compensation was in exchange for continued support or services expected to be provided to the company over the vesting periods under the NantWorks shared services agreement discussed in Note 10 , Related-Party Agreements .

We have evaluated the associated benefit of these awards to the affiliated companies under common control and determined that the benefit is limited to the retention of their employees.

We estimated such benefit at the grant date fair value of $ 4.0 million and recorded $ 0.3 million and $ 0.8 million of deemed dividends for the nine months ended September 30, 2022 and 2021 in additional paid-in capital, on the condensed consolidated balance sheets, with a corresponding credit to stock-based compensation expense.

We estimated such benefit at the grant date fair value of $ 4.0 million on March 4, 2021 and recorded $ 0.1 million and $ 0.1 million of deemed dividends for the three months ended March 31, 2023 and 2022 in additional paid-in capital, on the condensed consolidated balance sheets, with a corresponding credit to stock-based compensation expense.

Related-Party Warrants

In connection with the Merger, warrants issued to NantWorks, a related party, in connection with NantCell’s acquisition of Altor were assumed by the company.

After applying the Exchange Ratio at the Effective Time of the Merger, a total of 1,638,000 warrants with an exercise price of $ 3.24 per share were outstanding as of September 30, 2022.

After applying the Exchange Ratio at the Effective Time of the Merger, a total of 1,638,000 warrants with an exercise price of $ 3.24 per share were outstanding as of March 31, 2023.

The fair value of $ 18.0 million assigned to the warrants will be recognized in equity upon achievement of a performance-based vesting condition pertaining to building manufacturing capacity to support supply requirements for one of our product candidates.

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federal income tax, as well as income tax in Italy, South Korea, California and other states.

From inception through September 30, 2022, we have not been required to pay U.S.

From inception through March 31, 2023, we have not been required to pay U.S.

federal and state income taxes because of current and accumulated net operating losses (NOLs).

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No tax benefit was provided for losses incurred in the U.S., Italy, and South Korea because those losses are offset by a full valuation allowance.

The company is no longer subject to income tax examination by the U.S.

federal, state or local tax authorities for years ended on or before December 31, 2016.

Our federal returns for tax years 2019 through 2021 remain open to examination, and our state returns remain subject to examination for tax years 2018 through 2021.

The Italian and South Korea returns for tax years 2017 through 2021 remain open to examination.

Carryforward attributes that were generated in years where the statute of limitations is closed may still be adjusted upon examination by the Internal Revenue Service or other respective tax authorities.

No income tax returns are currently under examination by taxing authorities.

On March 9, 2021, the company completed the Merger with NantCell.

The Merger is accounted for as a transaction between entities under common control, and is considered a nontaxable transaction for U.S.

income tax purposes, as it is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code).

Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022 (IRA) was passed by Congress and signed into law on August 16, 2022 by President Biden.

The IRA includes a number of tax provisions that may impact the company’s tax position in current and future periods.

The legislation includes provisions that will impose a new corporate minimum income tax, an excise tax on the buyback of a corporation’s stock from its stockholders, new tax credits for the production of renewable energy sources, the sequestration of carbon, the production of hydrogen energy, etc.

The company is currently reviewing and evaluating the application of the provisions of the IRA to its operations and the effect on its current and future operations.

The provisions of the new tax law are complex and sometimes incorporate new concepts that generally have excluded brother-sister corporations, partnerships and other affiliated entities from consideration.

Based on the review, the company’s operations and financial condition was not impacted by the IRA during the three months ended September 30, 2022.

The Inflation Reduction Act 2022, which incorporates a Corporate Alternative Minimum Tax (CAMT), was signed on August 16, 2022.

The changes are effective for the tax years beginning after December 31, 2022.

The new tax will require companies to compute two separate calculations for federal income tax purposes and pay the greater of the new minimum tax or their regular tax liability.

The company will be monitoring the impact of the act to determine if it will have an impact on the company for years beginning after December 31, 2022.

We currently do not expect this act will have a material effect on our consolidated financial statements.

Coronavirus Aid, Relief and Economic Security Act

On March 27, 2020, the U.S.

enacted the Coronavirus Aid, Relief and Economic Security Act (the CARES Act).

The Cares Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the U.S.

economy and fund a nationwide effort to curtail the effect of COVID-19.

The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic.

Under the CARES Act, some of the more significant provisions are NOL carrybacks for five years to offset previous years’ income, or can be carried forward indefinitely to offset 100% of taxable income for the tax year beginning before 2021 and 80% of taxable income for tax years 2021 and thereafter, increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.

During the three months ended March 31, 2023 and 2022, we did not record any income tax (expense) benefit resulting from the CARES Act, mainly due to our history of net operating losses generated and the maintenance of a full valuation allowance against our net deferred tax assets.

There was no material impact from the provisions of the Cares Act for the three months ended March 31, 2023 and 2022.

State of California Assembly Bill No.

On June 29, 2020, the state of California enacted Assembly Bill No.

85 (AB 85) suspending California NOL utilization and imposing a cap on the amount of business incentive tax credits companies can utilize, effective for tax years 2020, 2021 and 2022.

There was no material impact from the provisions of AB 85 for the three months ended March 31, 2022.

On February 9, 2022, Senate Bill No.

113 was enacted that removed the limitations on the use of NOLs and the cap on the business incentive tax credits that were suspended in accordance with AB 85 effective for tax year 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements